Summary
Euro zone sovereign yields moved lower on Friday following a sharp decline in oil prices after shipping resumed through the Strait of Hormuz. The fall in energy costs, combined with a European Central Bank survey showing weaker near-term consumer inflation expectations in May, pushed benchmark yields toward their largest weekly drop in more than a year.
Market moves
Germany's 10-year bond yield fell by 1 basis point to 2.848%, marking its lowest level since mid-March. Over the course of the week the benchmark yield has declined by roughly 13 basis points, the steepest weekly reduction since March 2025.
Euro zone yields broadly declined as traders reacted to the fall in oil prices and softer inflation signals from the ECB survey.
Oil and shipping
Oil prices dropped after shipping resumed through the Strait of Hormuz, which is typically responsible for handling around 20% of global oil and gas supplies. Brent crude fell 5% to $71.55 a barrel after an earlier overnight rise prompted by a reported attack on a vessel in the waterway. Two U.S. officials told Reuters that Iran had fired on the ship.
The reported attack and the subsequent resumption of transit highlighted the fragile nature of the U.S. and Iran deal to end the war, which established 60 days of talks on matters including Tehran's nuclear program.
Inflation and policy expectations
The return of shipping through the Strait of Hormuz reduced some near-term inflation concerns among market participants, prompting a reassessment and lowering of expectations for additional central bank rate increases. Yields extended their decline on Friday after a European Central Bank survey indicated consumers reduced their near-term inflation expectations in May.
Implications
Lower oil prices and softer inflation expectations have translated into falling government bond yields in the euro area, reflecting market adjustments in both energy and fixed-income sectors. The developments influenced investor expectations around central bank policy and the inflation outlook.