Eurozone Bond Yields Decline Amid Inflation and Political Uncertainty

Euro zone long-dated government bond yields experienced a fourth consecutive weekly decline. Inflation data varied across countries, with Italy exceeding expectations. German inflation remained flat, and political unrest in France added uncertainty. The ECB's interest rate policy remains in flux, impacting both short-term and long-term yield movements.

Euro zone long-dated government bond yields are poised for a fourth consecutive weekly decline, influenced by mixed economic data and fluctuating inflation expectations, which have slipped below the 2% threshold.

While inflation stats from France and the euro zone aligned with predictions, Italy exceeded forecasts. Meanwhile, Germany's inflation remained flat in November, contrary to probable increases. In France, political instability looms as Prime Minister Michel Barnier's administration faces potential collapse, driving fluctuations in French debt risk premiums.

In the interest rate space, Germany's 10-year yield fell by 2 basis points to 2.107% this week, while Euro Central Bank (ECB) deposit rate anticipations adjusted, with a larger rate cut becoming less likely. Meanwhile, France's political concessions and the growing public deficit continue to fuel market volatility, casting uncertainty over the eurozone's economic forecast.

(With inputs from agencies.)