Daiwa Comments in Wednesday's Germany Bunds, U.K. Gilts

02:12 PM EDT, 03/25/2026 (MT Newswires) -- While European Central Bank policymakers reinforced that the April and June Governing Council meetings were live for a rate hike, German Bunds followed the global trend higher on Wednesday, said Daiwa Capital Markets.

In conference presentations in Frankfurt on Wednesday, President Christine Lagarde and Chief Economist Philip Lane reiterated that the near-term path for ECB policy remains extremely uncertain. As Lagarde last week noted and the ECB's scenario analysis made clear, the impact on inflation, and by implication monetary policy, will depend in good part on the duration and severity of the conflict and associated damage to energy infrastructure and transit via the Strait of Hormuz.

However, Lagarde and Lane emphasized likely non-linearities whereby the impact on inflation and second-round effects could increase exponentially as the length of the conflict and eventual shift in energy prices increase. They are mindful that early tightening might help to limit the eventual terminal rate, containing the hit to the eurozone's real economy, noted the bank.

As a consequence, both policymakers made clear that, while they again insisted that rates are certainly not on a predetermined path, the Governing Council's April and June meetings will be live for possible tightening. They also reiterated that the decision whether or not to raise rates would depend on the data to be published between now and then.

Gilts made larger gains on Wednesday as the United Kingdom inflation held steady ahead of the Iran war, with services, food and energy components easing, stated Daiwa.

While it has been superseded by recent events, Wednesday's consumer price index report gave an update on inflationary pressures before the outbreak of the Iranian war. This showed that headline inflation held steady in February at 3.0% year over year, the joint-lowest in 11 months and in line with the Bank of England's projection in the February Monetary Policy Report.

Energy shock will push inflation notably higher in H2 2026, likely triggering a near-term rate hike, added Daiwa.

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