Euro zone yields drop amid hopes over Iran talks

By Stefano Rebaudo

April 14 (Reuters) - Euro zone benchmark Bund yields edged down but remained not far from their highest levels in almost 15 years on Tuesday, amid hopes for a resolution of the Middle East conflict.

Sources familiar with the negotiations said talks between the United States and Iran were ongoing. U.S. Vice President JD Vance said on Monday the U.S. expects Iran will make progress on opening the Strait of Hormuz.

Recent jumps in oil prices heightened inflation concerns and supported expectations for European Central Bank rate hikes. Brent futures were down on Tuesday.

Germany’s 10-year government bond yield DE10YT=RR fell 3 basis points to 3.06%. It reached 3.13% in late March, its highest level since 2011.

Analysts argued that while the truce was more fragile, both parties were unlikely to let full-blown war resume.

Money markets priced in an ECB deposit facility rate at 2.64% by year-end EURESTECBM6X7=ICAP, implying two hikes and an about 50% chance of a third move, from around 2.60% late Friday.

They also indicated a 30% chance of a rate increase in April from 25% late Friday. The deposit facility rate is currently at 2%.

Germany’s 2-year yields DE2YT=RR, more sensitive to expectations for policy rates, were down 3 bps at 2.61%. They reached 2.771% in late March, the highest level since July 2024.

Italy’s 10-year government bond yields IT10YT=RR fell 4 bps to 3.84% after reaching 4.142% last Friday, the highest since July 2024.

The yield gap of Italian government bonds versus Bunds was at 75 bps. It was at 63 bps before the attacks on Iran and hit 103.62 during the conflict, the highest since June 20, 2025.