Yields on 10-Year U.S. Treasurys, German Bunds Reach New Peaks as Inflation Fears Persist

By Emese Bartha

The 10-year U.S. Treasury yield rose to an eight-month high and the 10-year German Bund hit its highest since 2011 on Friday as bonds were sold across the board in the absence of any tangible de-escalation in the Middle East war.

U.S. President Trump extended a pause on strikes on Iranian infrastructure by 10 days to April 6 so peace negotiations can take place. At the same time, however, Trump is considering sending 10,000 further troops to the Middle East, according to The Wall Street Journal.

Oil prices rose further, causing bond yields to increase due to fears of a sustained period of elevated inflation. This could force central banks to raise interest rates even as economies suffer.

"Hopes of a swift resolution have faded, energy costs are set to stay painfully high, and the spectre of stagflation [high inflation and weak economic growth] is hovering over economies," said Susannah Streeter, chief investment strategist at Wealth Club in a note.

The 10-year Treasury yield rose to 4.464%, its highest since July last year, while the 10-year German Bund yield hit a 15-year peak of 3.130%, according to Tradeweb data.

Yields on ten-year U.K. government bonds jumped back above 5%, edging closer to Monday's peak of 5.118%, their highest level since 2008. They were last up 13.5 basis points at 5.085%.

The rise came as the price of Brent crude oil rose 2.3% to $110.48.

Typically, when equity markets wobble, bonds act as a buffer as investors seek safety. However, yields have pushed higher even as equities have fallen, reflecting a fear of prolonged inflation and interest rates staying higher for longer, said Matt Britzman, senior equity analyst at Hargreaves Lansdown in a note.

Since the start of the war almost four weeks ago, market expectations about major central banks' rate path have drastically changed course.

Markets currently price in three interest-rate increases by both the European Central Bank and the Bank of England this year, according to LSEG. Prior to the war, money markets had expected the ECB to keep rates on hold this year and expected two rate cuts by the Bank of England. Investors also price a 70% chance of the U.S. Federal Reserve raising interest rates this year.

"This is a remarkable turn of events in just a matter of weeks," said Mitch Reznick, group head of fixed income at Federated Hermes in a note.

Still, markets are subject to hefty volatility and many analysts expect central banks are unlikely to deliver the number of rate hikes that money markets are pricing in.

Analysts at Muzinich & Co said a status quo in the near term for major central banks' policy rates is more likely, they said in a note.

Bond yields could be approaching levels that could prompt long-term investors to start buying them again.

"In the U.S., Treasury bonds remain a perceived safe-haven source of yield and portfolio diversification benefits," Pimco economist Tiffany Wilding and Andrew Balls, CIO for global fixed income, said in a note.

The rapid revision of central bank expectations in response to the Middle East conflict has generated localized volatility and opportunities to invest against the prevailing narrative, they said.

Hargreaves Lansdown's Britzman also said that rising U.S. borrowing costs could put pressure on Trump to find a way out of the war.

"We know the White House keeps a close eye on the bond market, so pressure will be mounting to secure a deal in the Middle East sooner rather than later," he said.

Write to Emese Bartha at emese.bartha@wsj.com

(END) Dow Jones Newswires

March 27, 2026 07:17 ET (11:17 GMT)