European sovereign bond yields fell on Monday as investors reacted to the commencement of diplomatic talks between the United States and Iran in Switzerland, providing relief after a volatile week marked by a brief rally and subsequent flight‑to‑safety.
The benchmark German 10‑year Bund yield decreased by approximately 2.975 basis points, reversing a gain of about seven basis points recorded on Friday. The German two‑year note, which moves closely with expectations for the European Central Bank’s policy stance, fell 2.63 basis points.
In the United Kingdom, gilt yields moved higher; the 10‑year gilt rose to 4.85 % and the two‑year gilt increased to 4.25 %.
Market attention turned to the European Central Bank, where President Christine Lagarde and Chief Economist Philip Lane were scheduled to speak later in the day. Investors were seeking a pulse check on how the ECB intends to balance lingering inflationary pressures following a recent war‑induced rate hike against tentative signs that Middle‑East hostilities are easing.
The geopolitical backdrop included U.S. President Donald Trump’s warning of fresh military strikes against Iran, linking the rhetoric to Hezbollah activity in Lebanon. Conflicting reports emerged regarding the Strait of Hormuz: Tehran claimed the critical energy chokepoint had been closed again, while maritime tracking data indicated that shipping traffic continued through the waterway.
Earlier in the week, sovereigns had initially rallied on the signing of a Washington‑Tehran peace deal, but the rally reversed when the United States abruptly withdrew from scheduled talks, triggering a classic flight‑to‑safety and a spike in oil prices.
Media reports also suggested that UK Prime Minister Keir Starmer might step down after a parliamentary election victory by his internal rival Andy Burnham, providing additional political context to the bond market movements.