Euro Zone Yields Steady Ahead of Inflation; June ECB Cut Priced In
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Euro area sovereign bond yields held broadly steady on Wednesday as fixed income markets remained in a holding pattern ahead of key consumer inflation prints from Germany and France. With investors awaiting confirmation of disinflationary momentum, rate expectations remained firmly anchored around a June policy pivot by the European Central Bank.
Germany’s 10-year Bund yield, the benchmark for the euro zone (DE10YT=RR), slipped 0.5 basis points to 2.49%, reflecting subdued trading volumes and a cautious macro tone. Shorter-dated yields were similarly stable, with the 2-year Bund yield—a proxy for ECB rate expectations—unchanged at 1.74%. Peripheral spreads remained tight, with Italy’s 10-year yield (IT10Y) flat at 3.62%, keeping the BTP-Bund spread at 109 basis points, signaling continued investor confidence in lower-rated euro area debt despite growing global macro uncertainty.
Money market pricing (EURESTECBM1X2=ICAP) reflects a fully priced 25 basis point ECB rate cut in June, with the deposit facility rate projected at 1.62% by December (EURESTECBM5X6=ICAP), indicating expectations of a gradual, data-dependent easing cycle through year-end.
In the U.S., Treasury yields ticked marginally higher in early London trade following a six-session decline that brought the 10-year yield to a three-week low. The move followed softer-than-expected U.S. labor market data, with job openings dropping sharply in March and consumer confidence falling to its lowest level since 2019—both developments that support dovish repricing of Federal Reserve expectations.
All eyes now turn to the euro zone inflation readings, which could shape the near-term policy narrative for the ECB and influence the trajectory of core European yields heading into the May Governing Council meeting.
Germany’s 10-year Bund yield, the benchmark for the euro zone (DE10YT=RR), slipped 0.5 basis points to 2.49%, reflecting subdued trading volumes and a cautious macro tone. Shorter-dated yields were similarly stable, with the 2-year Bund yield—a proxy for ECB rate expectations—unchanged at 1.74%. Peripheral spreads remained tight, with Italy’s 10-year yield (IT10Y) flat at 3.62%, keeping the BTP-Bund spread at 109 basis points, signaling continued investor confidence in lower-rated euro area debt despite growing global macro uncertainty.
Money market pricing (EURESTECBM1X2=ICAP) reflects a fully priced 25 basis point ECB rate cut in June, with the deposit facility rate projected at 1.62% by December (EURESTECBM5X6=ICAP), indicating expectations of a gradual, data-dependent easing cycle through year-end.
In the U.S., Treasury yields ticked marginally higher in early London trade following a six-session decline that brought the 10-year yield to a three-week low. The move followed softer-than-expected U.S. labor market data, with job openings dropping sharply in March and consumer confidence falling to its lowest level since 2019—both developments that support dovish repricing of Federal Reserve expectations.
All eyes now turn to the euro zone inflation readings, which could shape the near-term policy narrative for the ECB and influence the trajectory of core European yields heading into the May Governing Council meeting.