Bonds: Oil Prices Drive Interest Rate Expectations

The ups and downs of oil prices cause returns to rise at times and fall at others. This week, they edged slightly lower. Well-known stocks such as BMW, Continental, and Würth are in demand, while risk-takers are venturing into bonds denominated in Turkish lira.

August 7, 2026. FRANKFURT (Deutsche Börse). The bond market continues to be shaped by the war in Iran and its impact on oil prices and inflation. The news picture is currently mixed. U.S. President Donald Trump speaks of an imminent end to the war, but the Strait of Hormuz remains closed. “Although negotiations are ongoing, market participants’ hopes for a de-escalation of the situation and a prompt reopening are fading,” notes Ulrich Wortberg of Helaba.
This—along with the holiday season—is leading to a wait-and-see attitude toward bonds, as Tim Oechsner of Steubing AG reports. “Overall, the bond market was characterized by low trading volumes and low liquidity.” Gregor Daniel of Walter Ludwig Wertpapierhandelsbank agrees: “Trading volumes remain limited,” he notes.

“Concrete Agreements Needed to Open the Strait of Hormuz”

Yields in Germany declined over the course of the week: Ten-year German government bonds were yielding 3.15 percent on Friday morning, down from 3.21 percent a week ago. “For the yield on ten-year German government bonds to move further toward 3 percent, concrete agreements on opening the Strait of Hormuz will likely be necessary,” says Commerzbank analyst Pascal Reichert. “Market confidence in announcements lacking substance appears to be waning.” Today, Friday, all eyes are on the U.S. jobs report, which will be released this afternoon. The report is expected to provide insight into the state of the U.S. economy and the future trajectory of interest rates.

“The Sword of Damocles of Rising Interest Rates”

“In the short term, developments in the bond markets will depend on how the war in Iran unfolds,” notes Commerzbank analyst Vincent Stamer. If the situation in the Persian Gulf eases, inflation will likely fall again, allowing central banks to reverse the key interest rate hikes they have implemented up to that point. In the medium to long term, however, the enormous supply of bonds resulting from loose fiscal policy—including in Germany—will cause yields to rise again. “In the worst-case scenario, investors could begin to doubt the sustainability of government debt, which could trigger a vicious cycle of even faster-rising yields and spiraling government debt.”