German bond yields soar to a two-year high, oil prices break above $90 sparking rate hike expectations, with markets pricing in another move before September

⑴ Germany's two-year government bond yield climbed to its highest level since July 2024 on Monday, hitting 2.817% during the session and closing at 2.81%, up about 4 basis points from the previous trading day.⑵ Driven by oil prices surging due to the Iran conflict, Brent crude jumped over 3% on Monday and broke the $90 per barrel threshold, with energy transport disruptions in the Strait of Hormuz sparking renewed market concerns about inflation.⑶ Currency market pricing shows the European Central Bank’s deposit rate is expected to rise to 2.70% in December and further increase to 2.78% by February 2027, with the current rate at 2.25%.⑷ The market fully anticipates the European Central Bank will raise rates before September, with the short end of German bonds—most sensitive to expectations of policy rates—leading the declines, and notable selling pressure on the front end of the yield curve.⑸ The sharp rise in oil prices has reignited fears of stagflation, prompting traders to rapidly raise their terminal rate expectations; if geopolitical tensions persist, German bond yields may still have further upward momentum, with subsequent focus shifting to oil price movements and statements from European Central Bank officials next week.