German bond yields hit highest level since 2011 as Middle East tensions reignite inflation fears

German 10-year Bund yields climbed to approximately 3.19-3.21% on July 23, marking their highest point since May 2011. The catalyst this time around is a familiar one: oil. Brent crude prices have surged amid escalating tensions in the Middle East, particularly concerning Iran and the Strait of Hormuz, the narrow waterway through which roughly a fifth of the world’s oil supply passes. When energy prices spike, inflation expectations follow. And when inflation expectations follow, bond yields do what they always do: go up. The ECB’s tightrope walk The European Central Bank is set to convene for a policy decision on July 23-24, with investors widely expecting the central bank to hold rates steady for now. Money markets have fully priced in at least two 25-basis-point rate hikes by December 2026. The most likely next move is a September increase, which would follow the ECB’s June 2026 hike, a decision that ended a three-year moratorium on rate increases. Bund yields have risen by roughly 0.32 percentage points over the past month alone, driven by sticky inflation and fiscal supply concerns. German Bunds serve as the benchmark for European sovereign debt. When Bund yields move, everyth...