German two-year yields reached 3.0% on September 9 and the 10-year Bund traded around 3.38%, near its highest level since 2011. Oil is part of that move, but it does not explain the scale of the repricing investors are now being asked to absorb.
Markets put the European Central Bank's deposit rate at roughly 2.73% by December and 3.05% by September 2027, up from 2.25% today. Thursday's 25-basis-point increase is almost fully priced, and Reuters' September 3 poll of 65 economists also expects a hike. The disagreement starts after September 10. (Reuters via London South East)
The ECB's third-quarter Survey of Professional Forecasters gives the cleanest benchmark. Respondents saw the deposit rate peaking around 2.5% near the turn of 2026 to 2027, while longer-term inflation expectations remained at 2.0%. The market is pricing roughly another half percentage point of restraint beyond that modal peak without a comparable deterioration in long-run professional inflation expectations. (European Central Bank)
The policy-sensitive part of the curve has moved furthest
The energy shock has clearly altered near-term inflation risk. The ECB's second-quarter survey already recorded sharp upward revisions to 2026 inflation after the Middle East war began. Yet the third-quarter survey, conducted after energy prices had temporarily eased, left 2026 headline inflation at 2.7%, put 2027 at 2.2% and kept longer-run expectations at 2.0%. (European Central Bank)
Respondents also expected indirect and second-round effects from the energy shock to be limited and concentrated in 2026.
A September 2027 deposit rate of 3.05% therefore requires more than a $100 Brent print. It implies some combination of more persistent energy inflation, a less tolerant ECB reaction function, firmer underlying inflation or a larger policy premium because the distribution of outcomes has widened.
The curve itself supports that reading. Germany's two-year yield, which is more tightly tied to the policy path, is around 3%. The 10-year Bund at roughly 3.38% also reflects fiscal issuance, real-rate risk and term premium. Treating the long-end move as a pure oil trade would attribute too much to one shock. (Reuters via London South East)
The mispricing question begins after Thursday
A move to 2.5% would merely take the deposit rate to the level forecasters already expected it to reach. What matters is the path officials endorse from there.
If the ECB argues that the energy shock is still largely temporary, a market path near 3.05% in September 2027 has room to fall. If officials validate another year of tightening risk, the survey's 2.5% modal peak will look stale.
Britain offers a useful comparison. Two-year gilt yields touched 4.629% on Wednesday and markets assigned roughly a 70% probability to a Bank of England increase by November, even though Reuters-polled economists expect no hike this year. Governor Andrew Bailey said Tuesday that market prices reflected the possibility of further energy pressure; Reuters reported that he was not signaling an imminent increase. (Reuters via London South East)
Both markets are charging more for the risk that central banks react harder than economists expect. The difference is that the ECB is already tightening.
For euro rates, September 10 is largely priced. The trade is whether late-2027 rates above 3% are justified by a durable change in medium-term inflation dynamics or mainly compensate investors for uncertainty around one. The latest professional forecasts still lean toward the latter.
Sources
Reuters, ECB curve pricing before September 10 meeting
ECB, Q3 2026 Survey of Professional Forecasters
ECB, Q2 2026 Survey of Professional Forecasters
Reuters, UK front-end pricing and Bailey comments