Yields on German Bundestags, the euro zone’s benchmark, rose slightly on Thursday in response to moves in U.S. Treasuries, but markets indicated there was a roughly 35% chance the European Central Bank would cut rates in 2026.
Traders now see a higher chance of a rate cut by December 2026, compared with 20% last week, but expectations are down from more than 40% on Tuesday.
The bond market is expected to remain in wait-and-see mode as a large amount of US data is scheduled to be released on Friday.
Economic data in the euro zone showed some weak signs, with the European Union’s trade surplus narrowing further after a surprise drop in German investor confidence in February, with domestic production weighed down by the weight of tariffs and rising Chinese imports.
Germany’s 10-year government bond yield, a benchmark for the eurozone, rose 1.5 basis points (bp) to 2.76%. On Tuesday, it hit 2.725%, its lowest level since December 1st, and earlier this month it was around 2.90%.
U.S. Treasury yields rose in early London trading, with the benchmark 10-year Treasury yield rising 2.5 basis points to 4.10%, after rising a day earlier as strong economic data strengthened the view that the Federal Reserve would keep interest rates on hold. It reached 4.018% on Tuesday, the lowest level since November 28th.
Germany’s two-year bond yield, more sensitive to policy rate expectations, rose 1 basis point to 2.06%.
Italy’s 10-year government bond yield rose 2 basis points to 3.37%. The gap with German federal bonds fell to 59.60 bps, the lowest level since August 2008, after falling to 53.50 bps in mid-January.
(Reporting by Stefano Rebaudo; Editing by David Holmes)
