German 10-year yield at two-week high as oil prices grind higher

Germany's 10-year yield nudged up to a ​two-week high on Tuesday as ​the Strait of Hormuz remained effectively ‌shut and ​oil prices climbed, leaving investors positioning for a longer-lasting period of weak growth and high inflation. The Bund yield, the ‌euro zone benchmark, rose two basis points to 3.06% its highest since April 14. While it is still below the 3.13% hit in late March before the U.S. and Iran agreed ‌a ceasefire, it has been ticking steadily higher in recent sessions.

Germany's two-year yield ‌rose a similar amount to 2.59%. Hopes for resolution to the two-month U.S. and Israeli war on Iran that has disrupted energy supplies and fuelled inflation were dampened after a U.S official said President Donald ⁠Trump is ​unhappy with the latest ⁠Iranian proposal to end the war.

That pushed Brent crude futures for June higher for a seventh day ⁠to $111.3 a barrel, up nearly 3% on the day, underscoring worries the surge in energy ​prices will spill over and cause a broader climb in prices and force central ⁠banks to raise rates. The European Central Bank meets on Thursday. While it is not expected to hike interest ⁠rates ​at this meeting, investors will be watching closely for any signals about how policymakers view the outlook for the euro zone economy.

Markets currently see the ECB as ⁠more likely than not to tighten policy by June, and are effectively fully pricing in ⁠two 25 bp ⁠rate hikes by September. The Bank of Japan kept rates unchanged on Tuesday but struck a hawkish tone, sending 10 year Japanese government ‌bond yields up ‌towards a 29-year peak.

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