June 12, 2026

ECB moves ahead with rate hike

Bonds Weekly | ECB has been the first of the major central banks to raise its key interest rates in response to the energy price shock triggered by the war in Iran.

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Bond Market Movers – Review and Outlook

What drove the bond markets last week?

U.S. President Trump has once again claimed that the long-awaited U.S.-Iran agreement to reopen the Strait of Hormuz is imminent. There has been no confirmation from Iran so far. Meanwhile, the ceasefire between the two countries has remained fragile. The military skirmishes have been continuing in Lebanon as well.
As expected, the ECB raised its deposit rate by 25 basis points to 2.25%. The staff projections for inflation for this year and next are higher than they were in March.
The U.S. jobs report for May exceeded all expectations. Average employment growth over the past three months reached 188,000, the highest level since March 2024.
U.S. inflation rose to a rate of over 4% in May. Energy prices have once again been the main driver, while the core rate remained just below 3%.
The latest auction of 10-year U.S. Treasury notes swa slightly aboveaverage demand. Meanwhile, demand for 10-year Bunds at the latest auction was the strongest since January.

What could drive the market next week?

Developments in the Middle East are set to remain the main driver of the financial markets. Is a peace agreement really within reach this time?
The Federal Reserve is holding its first meeting under the leadership of Kevin Warsh. It is widely expected that key interest rates will remain unchanged. The focus will be on the new "dot plot" and possible indications of a change in the Fed's balance sheet policy.
The central banks of the United Kingdom and Switzerland are also very likely to leave their key interest rates unchanged. In contrast, Japan's monetary authorities are heading for their first rate hike since December 2025.
As to the macroeconomic calendar, the focus will be on U.S. retail sales for May and, on this side of the Atlantic, the ZEW Economic Sentiment Index.
In the primary market for U.S. Treasury securities, the focus next week will be on the tap of the 20-year T-Bond. Meanwhile, activity in the primary market for euro-denominated government bonds is set to remain at an above-average level. We expect gross issuance to range between 35 and 40 billion euros, compared to 38 billion euros the previous week. Given moderate reflows, net cash flows are set to remain well in negative territory.