Eurozone Bond Yields Rise Amid Russian Tensions and ECB Rate Speculations

Eurozone government bond yields rose as the market assessed Russia-West tensions amidst awaiting PMI surveys impacting ECB policy. Germany's yields rose slightly while Italy's bond premiums tightened. Analysts await potential Moody's upgrade affecting Italian yields. Speculation on ECB policy rate changes in July and December continues.

Eurozone government bond yields experienced an uptick as market participants analyzed the increasing tensions between Russia and the West, coupled with anticipation for purchasing manager surveys (PMI) that may influence expectations for the European Central Bank's policy easing trajectory.

Russian officials condemned U.S. missile strikes, utilized by Ukraine to target an internal site, as an escalation in the long-standing 1,000-day conflict. Germany's two-year yield, closely tied to ECB policy rate expectations, saw a rise of one basis point (bp) to 2.13%, recovering from a previous low of 2.091% observed on Tuesday.

Market forecasts priced in an ECB deposit rate at 1.95% by July, while entirely factoring in a 25 basis points cut in December with a 20% likelihood of a 50 bps adjustment. Germany's 10-year yield, serving as the euro area benchmark, increased by one bp to 2.35%. In contrast, Italy's 10-year bond yields, the peripheral benchmark, increased by 2 bps to 3.59%, with the yield spread between Italian and German bonds measured at 123 bps, showing a tightening from the previous 115.90. Analysts are anticipating a Moody's upgrade, potentially impacting Italian yields this Friday.

(With inputs from agencies.)