German Bund Yields Hit Multi-Week Lows Amid Unclear ECB Rate Signals

German Bund yields reached multi-week lows after the European Central Bank's meeting revealed no clear decisions on future rate moves. ECB President Christine Lagarde described the next decision as 'wide open'. Market analysts discussed potential rate cuts in September and future economic indicators affecting these projections.

German Bund yields fell to multi-week lows on Thursday after an ambiguous policy meeting from the European Central Bank. ECB President Christine Lagarde said the decision in September remained 'wide open'. The 10-year Bund yield, a euro zone benchmark, decreased 1.5 basis points to 2.41%, hitting a fresh 3-week low at 2.403%.

"With signs of economic recovery already appearing, the ECB can accumulate more evidence on disinflation before further lowering rates," said Samuel Adams, a European economist at UBS Global Wealth Management. Recent inflation data supports a gradual easing of price pressures, he added.

Money markets show a 75% chance of a second 25-bps rate cut in September and a total of 70 bps cuts in 2024, aligning with pre-ECB statement levels. "We still see a high chance for a rate cut in September and expect markets to closely monitor wage data due in late August," said Massimiliano Maxia of Allianz Global Investors.

The central bank cut rates in June by 25 bps. "The market anticipates two additional cuts before year's end, aligning with our expectations, as inflation dynamics support further easing," said Nicolas Forest, Candriam's chief investment officer.

He added that the high current real interest rate justifies a normalization of monetary policy, mentioning the real ECB deposit facility rate, which is at 3.75%. Italy's 10-year yield fell 2.5 bps to 3.70%, just shy of a three-month low at 3.686%.

The gap between Italian and German Bund yields held steady at 128 bps, narrowing since June from above 160 bps amid European political uncertainty. Germany's two-year government bond yield, more sensitive to ECB rate expectations, decreased by 3.5 bps to 2.74%.

(With inputs from agencies.)