Euro Zone Bonds Rally as ECB Rate Cut Looms

The euro zone's benchmark Bund yields fell before an anticipated ECB rate cut. Germany's 10-year bond dropped to its lowest since October 4, as euro zone bonds rallied due to weakening oil prices. Markets anticipate a quarter-point rate cut, with focus also on various European debt dynamics.

The euro zone's benchmark Bund yields hit their lowest in over a week on Wednesday, anticipating a widely expected interest rate cut from the European Central Bank (ECB) this week. Germany's 10-year bond yield fell by nearly 4 basis points to reach 2.191%, the lowest since October 4. Bond yields and prices typically move inversely.

Euro zone bonds saw renewed interest as declining oil prices stirred concerns about inflation. Money markets are already factoring in a quarter-point rate cut from the ECB expected on Thursday, with traders divided over the potential for another cut within the year. Germany's two-year bond yield, which heavily reflects European Central Bank rate speculation, decreased by 3 basis points to 2.183%.

Attention also turns to Germany's 30-year debt auction, projected to raise 2 billion euros, as reported by UniCredit. Italy's 10-year yield was slightly down by 2 basis points at 3.45%, while the yield gap between Italian and German bunds broadened by 0.9 basis points to 124.9. Meanwhile, the spread between U.S. 10-year Treasuries and German bunds expanded by 0.2 basis points, reaching 181.43 basis points.

(With inputs from agencies.)