Euro Zone Inflation Fuels Rise in German Bond Yields

Germany's 10-year Bund yield reached a five-month high due to rising euro zone inflation, ample bond supply, and strong U.S. data. Despite increasing inflation, the European Central Bank is expected to cut rates. Elevated bond issuance and U.S. economic performance have also influenced market dynamics.

Germany's 10-year Bund yield, a key benchmark for the euro zone, climbed to its highest in over five months on Wednesday. The rise was driven by heightened inflation within the euro zone, robust U.S. economic data, and considerable bond supply.

Despite inflation reaching 2.4% last month, analysts believe the European Central Bank (ECB) may still pursue a rate cut, as the market has priced in. However, expectations for future rate cuts are now reduced, with traders anticipating further easing in 2025.

This adjustment in ECB policy path has notably contributed to the increased bond yields, as highlighted by Jussi Hiljanen, chief rates strategist at SEB. Additionally, heavy bond issuance in Europe, including Germany's and Italy's, has added pressure to the region's bond market.

(With inputs from agencies.)