European bond markets spent the week caught between an ECB that still leans hawkish and a growing case that yields have already priced in the tightening.
Early in the window, several research notes made the bull case for European duration: a soft eurozone economy, easing energy tail risks after the US-Iran de-escalation, and a Bund 10Y curve seen as attractive at the top of its range. Euro investment grade was framed as a favored carry trade — yields near 6% on high yield, supportive technicals, and a preference for European over US credit. AT1s and CoCos were flagged as the sweet spot within IG.
By mid-week, the tone hardened. Multiple analysts pointed to a September ECB hike lifting the deposit rate to 2.50%, with a small chance of a July surprise, as renewed oil strength revived inflation worries. Longer-run projections had 10Y euro sovereign yields drifting toward 3.2% by end-2026.
Late in the week, the published consensus tilted back toward duration, arguing rate-hike pricing looks stretched. Caution was flagged on French, Italian and Belgian spreads on fiscal and geopolitical risks.