German sovereign debt came under pressure after the European Central Bank delivered a 25-basis-point rate increase to 2.50% last Thursday, as interest-rate swaps fully discounted another quarter-point hike before year-end and two more increases by February 2027.
Yields on short-dated German borrowing costs spiked to fresh 2023 peaks, with the two-year Schatz climbing to its highest level since late last year. The 10-year Bund yield eased from its highest point since 2009 to trade around 3.518%, while the 30-year Buxl pulled back to 3.875%, snapping a three-session winning streak.
The rate-hike outlook is being set against a broader backdrop of central bank tightening across major economies. The Federal Reserve's policy-setting FOMC convenes later Tuesday for a two-day session, with interest-rate futures pricing in a 90% probability of a 25-basis-point increase on Wednesday — the U.S. central bank's first hike since mid-2023. Meanwhile, the Bank of Japan is widely expected to lift its policy rate by 25 basis points to 1.25% at its meeting later in the week.
Energy-market volatility adds to the macro tension. Brent crude futures climbed 1.2% on Tuesday to surpass $113 a barrel, after Saudi Arabia blamed Iran-backed forces for a strike on its East-West pipeline that could disrupt up to 4% of global oil supply. Yemen's Houthis carried out fresh attacks in the Red Sea, and transit talks in Oman were postponed.
