European bond markets spent the week torn between a hawkish ECB drumbeat and a late softening in the inflation picture.
Through midweek, published research leaned firmly hawkish: multiple analyses argued the ECB is on track to hike in June, with another move pencilled in for September, taking the policy rate toward 2.5%. The case rested on core inflation seen sticking above 2% for quarters, with hawkish signals from Lagarde, Lane and Schnabel explicitly cited. One forecast had euro area and Bund 10-year yields drifting from 2.6% toward 3.0% into 2026; another flagged 2Y euro inflation swaps drifting roughly 30bps a month while conflict-driven energy risk persists. Constructive views on Hungarian local debt were also reiterated, tied to EU fund progress.
Late in the week, the consensus tilted softer on inflation: sharply lower gas price assumptions were used to cut euro area headline inflation forecasts by 40bps for this year, with core seen approaching 2% by end-2027, and 5y5y real rates flagged as structurally too high near 92bps.
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