Gas Shocks And The Bund Curve
Gas supply shocks are described as more inflationary and longer lasting than oil shocks, leading to a growing “gas premium” in Bund yields over time. Bund yields may react only weakly, or fall slightly at first, because inflation passes through slowly, before rising in a sustained way at both short and long maturities. The note says current conditions point to an oil-led supply shock, with short-term bear-flattening. It then outlines the possibility of bear-steepening later as gas-related inflation builds. Given the recent supply disruptions that have pushed Brent crude above $95 a barrel for the first time since late 2025, we are clearly in an oil-led supply shock environment. This is already reflected in the latest February 2026 Eurozone HICP data, which showed an unexpected uptick in the energy component. The market is now pricing in a more hawkish European Central Bank in the immediate future. This dynamic strongly suggests a bear-flattening of the German Bund yield curve in the near term. We expect short-term yields to rise more sharply than long-term yields as the market digests immediate inflation risks, while growth concerns cap the long end. Derivative traders should consider establishing curve flattener positions, for instance by selling 2-year Bobl futures and buying 10-year Bund futures.Positioning For A Later Regime Shift
However, we must remember the lessons from the 2022 energy crisis, where gas supply shocks created a more persistent inflation wave. Dutch TTF gas futures are already creeping up past €55/MWh, indicating that a secondary, gas-driven price shock could be slowly building. This “gas premium” has historically embedded itself into Bund yields with a time lag. Therefore, as this stickier gas-related inflation starts to filter through the economy over the next month or two, the yield curve dynamic is likely to shift. We should be prepared for a pivot towards a bear-steepening environment, where longer-term inflation fears start to outweigh short-term rate hike expectations. This would be the time to unwind flatteners and position for long-end yields to rise more quickly. Create your live VT Markets account and start trading now.
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