Eurozone Bond Yields Decline Amid Weaker US Inflation Data

Eurozone bond yields are set for a weekly decline, influenced by weaker U.S. inflation data. Despite this, expectations remain that the Federal Reserve will maintain its pause on rate changes. German and Italian yields exhibited minimal fluctuations, with focus now on future European Central Bank policies.

Euro area benchmark Bund yields are poised for their first weekly decline since early December 2024, influenced by recent U.S. inflation data that have lowered borrowing costs across the Atlantic.

The U.S. inflation figures, revealed on Wednesday, were weaker than anticipated, yet not sufficiently impactful to alter the prevailing view that the Federal Reserve will refrain from immediate action, opting instead to await further data and fiscal policy developments, according to analysts.

Germany's 10-year bond yield, a benchmark for the euro zone, dropped 1.5 basis points to 2.51%, edging towards a one basis point weekly decline. Meanwhile, Germany's two-year yield, closely tied to European Central Bank rate expectations, fell by 1 basis point to 2.22%, aligned with a projected 5 basis point drop for the week. Money markets have adjusted their projections for the European Central Bank's deposit facility rate to exceed 2% by the end of 2025, slightly down from earlier this week. Italy's 10-year yield remained steady at 3.66%, with the yield spread between French and German bonds rising 1.5 basis points following a critical political development in France.

(With inputs from agencies.)