Germany’s 10-year Bund yield fell to 3.45%, retreating from the 17-year highs reached last week, as turmoil in bond markets prompted investors to scale back expectations for further ECB rate hikes. Markets are now pricing in an 80% probability of another rate increase by year-end. Whereas investors had previously expected at least three further hikes by March 2027, they are now fully pricing in just one additional move, with roughly an 80% chance of a second. ECB Chief Economist Philip Lane said on Monday that the recent surge in borrowing costs could weigh on the economy by curbing demand, potentially reducing the amount of further tightening needed to contain inflationary pressures. Meanwhile, the France-Germany 10-year yield spread narrowed further as investors reassessed whether France’s recent jump in risk premium had been excessive. In Spain, Prime Minister Pedro Sánchez called a snap election for November 29 following protests over rising housing costs.