European Central Bank officials hinted at a rate hike, and German long-term government bond yields hit a 12-year high

The yield on Germany's benchmark government bonds rose to its highest level since March in response. Previously, ECB Executive Board member Schnabel indicated that she was glad to see investors bet that the central bank's next interest rate move would be a rate hike.

Bloomberg reported that the yield on 10-year German government bonds rose 3 basis points to 2.83%, while the yield on long-term government bonds has reached its highest level since 2011. Meanwhile, the yields of similar bonds in the United States and the United Kingdom have been hovering near their year-to-date lows, far below their peak levels this year, creating a sharp contrast.

Isabel Schnabel is the first official of the European Central Bank to point out relatively definitely that after a cumulative rate cut of two percentage points, European interest rates have bottomed out. Her remarks strengthened the money market's view that the European Central Bank's easing cycle has come to an end. Traders are currently betting that the interest rate cut will be only 3 basis points by mid-year, lower than the 4 basis points expected last week.

Hauke Siemssen, a strategist at Commerzbank, wrote in a report to clients: "Influenced by Schnabel's speech this morning, German government bond yields are touching key levels."

German government bonds suffered their most severe plunge in 35 years in March after the German government announced a historic plan to release hundreds of billions of euros for defense and infrastructure construction. Although the decline narrowed in the following months, market concerns flared up again as German lawmakers approved the government's 2026 budget, which includes a net increase of 98 billion euros in federal borrowing.

In addition, the German government passed a controversial pension bill last week, which is expected to further increase spending costs and the budget deficit. This undoubtedly also intensifies market concerns over German government bonds.