Euro Area Bonds: A Resilient Market Amid Inflation Concerns

Euro zone benchmark Bund yields reached a two-month high as markets reduced bets on ECB rate cuts before German inflation data was released. The labor market remains strong, influencing ECB's cautious approach towards interest rate cuts. Government bond issuance predictions point to a significant decrease in 2025.

The Euro zone witnessed its benchmark Bund yields climbing to a fresh two-month high on Monday, amidst a market that scaled back expectations of the European Central Bank (ECB) implementing rate cuts. This comes as the monetary union awaits the release of crucial German inflation data.

Particularly, the consumer price index in Germany's Hesse region noted a year-on-year increase of 2.7%. National data is anticipated later, with Friday's data showing a smaller-than-expected rise in German unemployment for December, subsequently causing a rise in Euro area borrowing costs.

Analysts observed that Germany's 10-year government bond yield ascended by 2 basis points to 2.44%, peaking at 2.457%—the highest since November 7. A stronger economic outlook might prompt the ECB to tread carefully regarding interest rate cuts, reflecting in the rise of Germany's sensitive 2-year yield.

(With inputs from agencies.)