EU bonds spent the week torn between an ECB still flagging more hikes and a market increasingly skeptical that those hikes will land.
Early in the week, the published consensus leaned hawkish: multiple research notes argued the ECB will deliver at least one more 25bp hike — potentially two — citing sticky core inflation, energy-driven spillovers and firmer PMIs. That view framed Bund yields drifting toward 3% by late 2026, with Italian and French 10Y yields also forecast higher, and EUR 10Y swaps holding above 3%.
By Thursday and Friday, the tone shifted. Several analysts argued hawkish pricing — roughly 30bp of further tightening — looks vulnerable as oil eases and Lagarde strikes a more flexible tone, pointing to lower front-end yields and softer peripheral spreads. One contrarian thread went further, calling government bonds a structurally broken asset class amid entrenched deficits.
A separate strand flagged Dutch pension reform: heavy 10Y+ buying is seen tightening Bund–DSL spreads and steepening EUR 10s30s by 10–20bp.