Euro Zone Bonds Surge Amid Federal Reserve Rate Cut Signals

Euro zone government bond yields, particularly Germany's, rose significantly following the Federal Reserve's rate cut and hints at slower easing in 2025. The yield gap between U.S. Treasuries and German Bunds narrowed, while Italian and German bond yield spreads widened. Central banks show differing rate expectations.

Euro zone government bond yields saw a noticeable increase on Thursday, reacting to the Federal Reserve's decision to cut interest rates while suggesting a slower easing pace in 2025. Germany's 10-year yield, serving as the benchmark for the euro area, rose by 7 basis points to 2.31%, reaching levels not seen since November 22.

This development also affected the yield gap between U.S. 10-year Treasuries and German Bunds, narrowing slightly to 224 basis points. The narrowing followed a surge in U.S. Treasury yields, which climbed to their highest point since May.

The responses from central banks, such as the Bank of Japan and the Bank of England holding their interest rates steady, underscore a divergence in rate expectations, with the Fed showing cautious signals compared to a pressured European Central Bank.

(With inputs from agencies.)