Bonds Slide as War Takes ECB Hike From Fringe to Fully Priced

A week ago, anyone betting on a European Central Bank interest-rate hike was staking out a lonely, contrarian position. Now, with the Iran war threatening to stoke inflation, the trade is the consensus.

Money markets are certain the central bank will raise borrowing costs in 2026, a dramatic turnaround from a week ago, when a cut was viewed as more likely than a hike. Swaps are fully pricing a quarter-point increase as soon as September, and are assigning a one in three chance of a second by December.