Euro zone bond yields fall to three-week lows on rate cut hopes

Euro zone bond yields fell for a fourth straight session on Tuesday as investors increased their bets on rate cuts from the Federal Reserve and the European Central Bank this year, following weak U.S. jobs data on Friday.

Euro zone bond yields fell for a fourth straight session on Tuesday as investors increased their bets on rate cuts from the Federal Reserve and the European Central Bank this year, following weak U.S. jobs data on Friday. Germany's 10-year bond yield, the benchmark for the euro zone, was down 4 basis points (bps) to 2.438%, after earlier falling to its lowest since April 18 at 2.431%. Yields move inversely to prices.

Nonfarm payrolls data showed the U.S. labour market added 175,000 jobs in April, down from 315,000 in March and well below the 243,000 increase economists expected. In response, investors have moved to price in two interest rate cuts from the Federal Reserve this year, bolstering expectations that the European Central Bank can lower rates three times, starting in June.

A string of hot data in the world's most important economy had led investors to only expect one Fed rate cut this year, according to money market pricing, down from around seven at the start of 2024. The importance of the U.S. economy meant investors also lowered their expectations for other major central banks. "Little stands in the way of the gradual drift lower in yields," said Christoph Rieger, head of rates and credit research at Commerzbank. "The thin (data) calendar ... is unlikely to change the view that the U.S. economy is slowly losing steam."

Germany's two-year bond yield, which is more sensitive to European Central Bank rate expectations, was down 1 bp at 2.904%. Data on Tuesday showed that German exports rebounded in March, supported by strong U.S. and Chinese demand, although a disappointing month for industrial orders indicated weakness in the economy was lingering.

ECB policymakers said on Monday they were growing more confident about cutting interest rates, as the economy returns to mild growth and inflation looks under control. Gross domestic product figures last week showed the euro zone economy grew 0.3% in the first quarter after a small recession. Euro zone inflation fell to 2.4% in April.

Italy's 10-year yield was 4 bps lower at 3.768%, and the gap between Italian and German bond yields widened 1 bp to 132 bps.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)