By Stefano Rebaudo April 13 (Reuters) - Euro zone government bond yields edged up towards recent peaks on Monday after the United States and Iran failed to secure a deal to end the war, pushing oil
Euro zone bond yields rise as markets up ECB rate hike bets
Market Reactions and Bond Yield Movements
By Stefano Rebaudo and Lucy Raitano
April 13 (Reuters) - Euro zone government bond yields edged up towards recent peaks on Monday after the U.S. and Iran failed to secure a deal to end the war https://www.reuters.com/world/iran/, pushing oil prices higher and prompting traders to up their bets that the ECB will hike interest rates in 2026.
Oil Prices Surge Amid Geopolitical Tensions
Brent crude futures climbed above $100 a barrel nL1N40V07F as the U.S. Navy prepared to block ships to and from Iran via the Strait of Hormuz nL6N40V09S, a move that could restrict Iranian oil exports.
ECB Rate Hike Expectations
Meanwhile, money markets priced in a 44% chance of a rate increase in April from 25% late on Friday. The deposit facility rate is currently at 2%.
Traders are betting on an ECB deposit facility rate of about 2.68% by year-end, implying two hikes and a 70% chance of a third move, from around 2.60% late on Friday.
Markets see the ECB leaning hawkish nL6N40S0JS even as an energy shock threatens to weigh on growth.
German Bond Yields Response
Germany's two-year yields, more sensitive to expectations for policy rates, were up 6 bps at 2.64%. They reached 2.771% in late March, their highest level since July 2024.
Meanwhile, Germany’s 10-year government bond yield rose 4 basis points (bps) to 3.09%. It reached 3.13% in late March, its highest level since June 2011.
Analyst Commentary on Market Risks
Analysts argued that while the truce was more fragile after the weekend, both parties were unlikely to let full-blown war resume.
“The temporary truce briefly reduced immediate tail risks, but the failure of negotiations over the weekend has underscored that the constraints that matter most for near‑term (energy) pricing remain unresolved,” Tobias Keller, investment strategist at UniCredit, said.
"In our view, a repeat of the 1970s appears as an unlikely scenario, even if the war escalates," said Antonio Gabriel, global economist at BofA. The global economy has gradually become less dependent on oil since then, he added.
ECB Officials' Statements
The ECB's incoming vice president, Boris Vujcic, said on Monday that current energy prices are still closest to the ECB basic scenario nL1N40W0K6 and they should not influence inflation and growth, N1 regional television reported.
Current ECB Vice President Luis de Guindos said that any European Central Bank rate rise will depend on how a war-fuelled surge nL8N40W0XH in the cost of crude oil and some chemicals impacts other prices.
EGB Spreads and Country-Specific Yield Movements
Italian and French Bond Yields
EGB SPREADS WELL BELOW LATE MARCH HIGHS
Italy’s 10-year government bond yields rose 3.5 bps to 3.89%. They reached 4.142% in late March, the highest since July 2024.
The yield gap of Italian government bonds (BTPs) versus Bunds was at 78.08 bps. It was at 63 bps before the U.S.-Israeli war on Iran began and hit 103.62 during the conflict, the highest since June 20, 2025.
Strategist Insights on Spreads
“We would probably need to see a more significant escalation for BTP-Bund spreads to test the March highs again,” Hauke Siemssen, rate strategist at Commerzbank, said.
“BTPs should also underperform OATs (French government bonds) again this week as they are more susceptible to energy prices, while we expect the spread to re-tighten over the long term,” he added.
The French spread was at 65.11 bps from 58 bps before the conflict. Fitch confirmed nFWN3ZU1JL on Friday its A+ rating for France with a stable outlook.
(Reporting by Stefano Rebaudo; Editing by Susan Fenton and Andrew Heavens)
