Euro Zone Bond Yields Climb Following ECB's Cautious Stance

Euro zone bond yields inched higher as the European Central Bank (ECB) adopted a more cautious tone on monetary easing. The ECB's stance contrasted with the U.S. Federal Reserve's inclination towards rate cuts. The benchmark German 10-year bond yield rose, reflecting a similar trend across European government bonds.

Euro zone bond yields inched higher on Monday after the European Central Bank (ECB) adopted a more cautious tone on monetary easing. This contrasted with expectations that the U.S. Federal Reserve might soon start cutting its own interest rates. The German 10-year bond yield, the benchmark for the euro zone bloc, rose 1.2 basis points to 2.24%. Germany's two-year bond yield showed little change, holding at 2.37%.

Italy's 10-year yield also saw an upward trend, rising 1 basis point to 3.58%, while the yield gap between Italian and German bunds held steady at 133 basis points. On Friday, euro area government bond yields fell, mirroring declines in U.S. Treasury yields, after Fed Chair Jerome Powell hinted at an imminent start to rate cuts. Powell said, "the time has come for policy to adjust." Traders are now fully pricing in a 25 basis point rate cut from the Fed next month.

ECB chief economist Philip Lane took a more cautious approach, stating that although significant progress has been made toward cutting inflation back to the 2% target, success is not yet guaranteed. Speaking at the Fed's annual symposium in Jackson Hole, Lane emphasized that the monetary stance must remain restrictive to guide the disinflation process effectively. Meanwhile, traders are also monitoring escalating tensions in the Middle East, especially after Iran-backed Hezbollah launched rockets and drones at Israel.

(With inputs from agencies.)