German 10-Year Bond Yield Surpasses 2-Year Yield Amid Soft Business Activity Data

Yields on Germany's 10-year bond rose above its 2-year debt for the first time since November 2022, driven by weak business activity data. This change led to expectations of more ECB rate cuts. The disinversion of the yield curve signals a possible recession and has fueled further debate about ECB's monetary policy ahead of its October meeting.

For the first time since November 2022, Germany's 10-year bond yield has climbed above its 2-year debt yield, signaling potential economic shifts. This trend follows weak business activity data, raising expectations for more European Central Bank (ECB) rate cuts this year.

Such yield curve disinversion often precedes a recession, reflecting market anticipations of rate cuts to stimulate a weakening economy. The U.S. saw its yield curve disinvert in August, and now Germany joins the trend. Kenneth Broux from Societe Generale noted that this disinversion is more than symbolic.

Recent data revealed a sharp contraction in Germany's business activity, the largest in the eurozone. Meanwhile, French bonds were less influenced, a sign of safe-haven inflows amidst political concerns. These developments intensify the debate leading up to the ECB's critical October meeting.

(With inputs from agencies.)