European bond markets have continued to be roiled by ongoing political uncertainty in recent days, driving a steepening in yield curves, widening spreads for troubled sovereigns, and a depreciation in the euro.

Given the relatively muted trends in headline inflation versus the previous shock in 2022, current market pricing for central bank rates has fallen a little in recent weeks. Nevertheless, inflation worries have driven both the front end and long end of the curve since the US-Iran war began.