Eurozone yields fall as Fed signals rate cuts, BoE decision in focus
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Euro zone government bond yields extended their decline following the Federal Reserve’s reaffirmation of two rate cuts in 2025, as policymakers expressed concerns over slowing U.S. growth and potential inflationary pressures from tariffs. Investors now shift their attention to the Bank of England’s (BoE) policy decision, which could further influence the European fixed-income landscape.
Fed’s Dovish Stance Pressures Yields
Fed Chair Jerome Powell’s comments on economic risks tied to Trump’s tariff policies reinforced expectations for monetary easing, leading to a decline in global bond yields. Germany’s 10-year yield dropped to 2.77%, nearing a two-week low, while its 2-year yield slipped to 2.16%, reflecting expectations of easier monetary conditions from the European Central Bank (ECB).
Markets now price in an ECB deposit rate of 2.02% by year-end, with a 50% probability of a 25 basis point rate cut as early as April. The narrowing of the France-Germany yield spread to 62.3 basis points signals improving sentiment toward French debt, as budget projections suggest a lower-than-expected deficit.
Italy-Germany Yield Spread Narrows
Italian 10-year bond yields declined to 3.81%, with the risk premium between Italian and German bonds tightening to 103 basis points. The spread compression indicates growing confidence in Italy’s fiscal trajectory, aligning with broader expectations for monetary easing across the eurozone.
Market Outlook: Awaiting BoE Decision
With European bond yields declining, focus now turns to the BoE’s rate decision later today. While the central bank is widely expected to hold rates steady, investors will scrutinize its forward guidance for clues on potential easing later this year. Any dovish signals from the BoE could add further downward pressure on European bond yields, reinforcing expectations for a shift toward looser monetary policy in 2025.
Fed’s Dovish Stance Pressures Yields
Fed Chair Jerome Powell’s comments on economic risks tied to Trump’s tariff policies reinforced expectations for monetary easing, leading to a decline in global bond yields. Germany’s 10-year yield dropped to 2.77%, nearing a two-week low, while its 2-year yield slipped to 2.16%, reflecting expectations of easier monetary conditions from the European Central Bank (ECB).
Markets now price in an ECB deposit rate of 2.02% by year-end, with a 50% probability of a 25 basis point rate cut as early as April. The narrowing of the France-Germany yield spread to 62.3 basis points signals improving sentiment toward French debt, as budget projections suggest a lower-than-expected deficit.
Italy-Germany Yield Spread Narrows
Italian 10-year bond yields declined to 3.81%, with the risk premium between Italian and German bonds tightening to 103 basis points. The spread compression indicates growing confidence in Italy’s fiscal trajectory, aligning with broader expectations for monetary easing across the eurozone.
Market Outlook: Awaiting BoE Decision
With European bond yields declining, focus now turns to the BoE’s rate decision later today. While the central bank is widely expected to hold rates steady, investors will scrutinize its forward guidance for clues on potential easing later this year. Any dovish signals from the BoE could add further downward pressure on European bond yields, reinforcing expectations for a shift toward looser monetary policy in 2025.