Bund Yields Ease but September Losses Remain Steep

Germany’s 10-year Bund yield fell toward 3.55% at the end of September, moving away from a 17-year high of 3.65% reached earlier in the week, as markets became more cautious about further central bank rate hikes. Still, Bunds suffered a sharp selloff over the month, with yields rising 27 bps, driven by higher energy costs fueling inflation concerns and expectations that the AI boom could support growth, reinforcing bets on higher-for-longer interest rates. Political uncertainty ahead of elections in France, Spain and Italy next year also kept pressure on bonds. Meanwhile, the tone improved on Wednesday as oil prices retreated and central bankers pushed back against expectations of rapid and sustained tightening. ECB official Peter Kazimir said on Tuesday that the central bank has time to keep monetary policy flexible after raising rates twice this year. In the US, New York Fed President John Williams similarly said there was time to assess incoming data before raising rates again.