Euro zone bond yields climb before PMI figures; geopolitics in focus
EURO ZONE government bond yields edged up as market participants assessed heightened tensions between Russia and the West while waiting for purchasing manager surveys (PMI), which could affect expectations for the European Central Bank鈥檚 (ECB) policy easing path.
Russia had described a strike by US missiles, which Ukraine used to hit a target inside the country, as an escalation in the 1,000-day-old war.
Germany鈥檚 two-year yield, which is more sensitive to ECB policy rate expectations, rose one basis point (bp) to 2.13%. It hit 2.091% on Tuesday, its lowest since Oct. 24.
Markets priced in an ECB depo rate at 1.95% in July while fully discounting a 25 bps cut in December and a 20% chance of a 50 bps move.
Germany鈥檚 10-year yield, the benchmark for the euro area, was up one bp at 2.35%.
Italy鈥檚 10-year government bond yields, the benchmark for the euro area periphery, rose 2 bps to 3.59%.
The yield spread between Italian and German yields 鈥 a gauge of the premium investors demand to hold Italy鈥檚 debt 鈥 was at 123 bps after reaching 115.90 on Tuesday, its tightest level since mid-March 2024. Analysts expect a possible upgrade by Moody鈥檚 on Friday.
The gap between French and German yields was at 75 bps after hitting 70.9, its tightest since Oct. 31. 鈥 Reuters
