Gate News message, April 23 — Global bond markets entered 2026 expecting monetary easing, but geopolitical tensions in the Middle East and energy supply disruptions reversed that narrative during Q1, forcing investors to reassess interest rate outlooks. According to Eurex data, March marked a turning point as energy shocks reignited inflation concerns and triggered a broad sell-off in government bonds.
The energy-driven inflation shock prompted investors to scale back expectations for U.S. rate cuts and price in potential further tightening in Europe. The Federal Reserve held rates at 3.75 percent while the European Central Bank maintained rates at 2.15 percent throughout the quarter. Despite stable policy, market pricing moved ahead of central banks, reflecting forward-looking inflation risks.
Yield curves steepened across major markets. In the United States, the two-year to ten-year spread reached 53 basis points, while in Germany it stood at 40 basis points. Long-term yields rose more sharply than short-term rates, signaling that long-term inflation expectations drove much of the repricing. Italian 10-year bonds narrowed their spread versus German Bunds to 90 basis points, indicating sustained demand for higher-yielding assets.
Trading activity expanded significantly. Long-term interest rate futures volumes on Eurex rose 18 percent year-on-year, with open interest climbing 20 percent in German markets, 31 percent in Italian markets, and 27 percent in French contracts. Liquidity remained stable during normal periods, with top-of-book sizes in Bund futures exceeding 1,000 lots, though it tightened to around 190 lots during geopolitical stress and contract roll periods.
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