German bond yields rise as oil climbs ahead of US Midterm elections

Oil's rebound and US election uncertainty push German bond yields higher, with investors also tracking ECB rate expectations.

Germany's 10-year government bond yield, the euro zone benchmark, climbed 2.5 basis points to 3.32%, after touching 3.2898% on Monday, its lowest level since August 31.

The rebound in yields came as Brent crude futures advanced 2% on Tuesday following a report that the United States had struck Iran's Qeshm Island. Oil prices had fallen sharply in the previous session after discussions between Iranian and Qatari officials raised hopes of a negotiated resolution to the conflict.

According to Reuters, German borrowing costs declined in October as a selloff in artificial intelligence-related stocks prompted investors to seek safe-haven assets, while traders scaled back expectations of European Central Bank interest rate hikes.

Investors are also assessing the potential implications of the US midterm elections for financial markets. Analysts cited by Reuters expect German bonds to remain supported by the possibility of Democratic victories, which could weigh on Wall Street and dampen broader risk appetite.

Polls and independent analysts suggest Democrats are on course to regain control of the House of Representatives, although the battle for the Senate remains closely balanced.

Germany's two-year government bond yield, which is more sensitive to monetary policy expectations, rose 1.5 basis points to 3.03%.

Meanwhile, euro short-term rate (ESTR) forwards indicated that markets expect the European Central Bank's deposit rate to reach 2.72% by December 2026 and 3.16% by late 2027, compared with the current rate of 2.50%.

In the French bond market, the yield spread between French government bonds (OATs) and German Bunds stood at 162 basis points. The gap widened to 177.72 basis points on October 22, its highest level since November 2011.