European bond markets had a volatile week, with the dominant theme being a hawkish repricing of the ECB driven by energy-shock inflation from the Middle East conflict.
Early in the week, researchers flagged that markets were moving to price in as many as three ECB hikes by year-end, with a June move increasingly treated as the base case after President Lagarde signalled it had been discussed. The 10-year Bund pushed near 3.09% and the 2-year Schatz neared cycle highs as oil spiked. Forecasts circulated for the policy rate to reach roughly 2.65% by December.
Mid-week, hopes of an Iran deal and a possible reopening of the Strait of Hormuz triggered a sharp rally, with 2-year yields dropping over 10bp and the 10-year Bund slipping back below 3%. Peripheral spreads tightened.
By late week, the published consensus tilted more constructive on duration: several analysts argued current Bund levels offer medium-term value, citing weak eurozone growth and contained term premia, and recommended quality EUR government bonds and inflation-linked paper.
A standout concern: 30-year French yields hit highs not seen since 2009 on fiscal and political worries, nearly converging with Italian debt.