Bonds: “Yields Stabilize After a Sharp Rise”

Higher oil prices, higher inflation, and likely higher key interest rates—the recent escalations in the Middle East have caused interest rates to rise sharply in the bond market. As the week draws to a close, the situation is calming down. 

July 10, 2026. FRANKFURT (Deutsche Börse). The resurgence of the war in Iran, coupled with rising oil prices, is also having an impact on the bond market. “There was a lot of volatility in the market, but things have calmed down a bit now,” reports Beate Mägerle, who trades bonds for Walter Ludwig Wertpapierhandelsbank. “The week was dominated by the renewed mutual attacks in the Persian Gulf,” explains Commerzbank analyst Pascal Reichert. In addition, the German government is planning an even higher deficit for the coming years. “Furthermore, there have been extensive new issuances in the longer-term segment in the eurozone.”

As a result, yields on German government bonds rose sharply. The yield on 10-year bonds peaked at over 3.10 percent. Reports that the U.S. and Iran are continuing to work toward a diplomatic solution to the conflict are now easing tensions somewhat. However, as of Friday afternoon, 10-year German government bonds were still yielding 3.04 percent—up from 2.93 percent a week ago.

In the U.S., too, yields were trending upward, with yields on 10-year U.S. Treasuries heading toward 4.6 percent. As of Friday at noon, they still stood at 4.54 percent. “At an auction of new 30-year bonds, the yield reached a level not seen in 20 years,” reports Arthur Brunner of ICF Bank. “High government debt is making itself felt; buyers are demanding higher interest rates.”

Are more interest rate hikes on the way?

As for the future trajectory of key interest rates in the eurozone, following the 25-basis-point hike in June, the market expects rates to remain unchanged at the ECB meeting on July 23. In the U.S., the minutes from the latest Federal Reserve meeting revealed differences of opinion regarding the future interest rate path, as Deutsche Bank’s chief investment strategist Ulrich Stephan notes: “While some members anticipate inflation will ease and therefore consider rate cuts by year-end to be appropriate, others continue to see inflation risks and do not rule out additional rate hikes,” he explains. Following the press conference with the new Fed Chair Warsh, the market apparently initially anticipated a more restrictive Fed—that is, a trend toward higher key interest rates. Recently, however, expectations for further rate hikes have declined.

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