German Bunds Outperform as Oil and Political Risks Rise

German Bund yields were little changed at 3.48%, while borrowing costs in more indebted euro-area countries surged as investors sought safe-haven assets amid a rebound in oil prices and persistent fiscal and political uncertainty across Europe. Brent crude rose back above $100 a barrel as Iran intensified attacks on shipping in the Strait of Hormuz, reinforcing expectations for further rate hikes from major central banks. The ECB is now seen hiking twice more by March 2027, while swaps price around 75 basis points of tightening by the end of next year. Meanwhile, French bonds remain under pressure as political uncertainty ahead of the 2027 election raises concerns over the country’s finances. The minority government has unveiled a deficit-reduction plan, though the fiscal watchdog warned its economic assumptions were “optimistic.” Political uncertainty is also rising elsewhere, with Spain calling a snap election for November 29 and Italy heading to the polls next year.