Commerzbank strategists anticipate that the European Central Bank (ECB) will implement at least one more interest rate hike, forecasting this move for September, despite recent declines in oil and gas prices [1]. The bank's quantitative model projects that Euro area inflation will remain around 3% through the end of the year, attributing this persistence to companies gradually passing on previously incurred higher costs [1].
Commerzbank further notes that the ECB is likely to hike rates a second time due to ongoing inflation risks. Once inflation begins to decline, the ECB is expected to cut the deposit rate back to 2.0%, which was the level before the Iran war [1]. Regarding bond markets, the strategists predict that 10-year Bund yields will decrease once tensions in the Persian Gulf subside, as this would make interest rate cuts by both the ECB and the Federal Reserve more likely, potentially starting from mid-2027 [1].
However, Commerzbank cautions that the continued high funding needs in many countries, driven by large budget deficits, could limit the extent of any decline in yields [1]. No specific market reactions or analyst opinions beyond these forecasts are mentioned in the source.
CONCLUSION
Commerzbank expects the ECB to raise rates in September due to persistent inflation, with eventual rate cuts likely only after inflation subsides and geopolitical tensions ease. While lower Bund yields are anticipated in the medium term, high budget deficits may restrict further declines.