Euro Zone Borrowing Costs and Regional Elections Shake-up

Eurozone borrowing costs varied ahead of U.S. manufacturing data, influencing Federal Reserve policy expectations. German regional elections impacted Bund yields, revealing economic concerns. U.S. job figures could affect rate cuts, while French financial worries put pressure on President Macron. ECB's potential rate cuts and possible economic slowdown are key focal points.

Eurozone borrowing costs struggled for direction on Tuesday ahead of the highly anticipated U.S. ISM manufacturing data release, which could significantly influence expectations for the Federal Reserve's easing cycle.

Bund yields reached a one-month high on Monday, and euro area spreads tightened following the results of two critical German regional state elections that delivered a blow to the ruling coalition. The far-right Alternative for Germany (AfD) recorded a historic win, becoming the first such party to seize a regional election since World War Two.

Analysts are also eyeing U.S. job figures due later in the week, which could determine the Federal Reserve's rate cut magnitude. Meanwhile, Germany's 10-year yield, a crucial benchmark, dropped one basis point to 2.32%, after peaking at 2.349% on Monday—its highest since July 30.

(With inputs from agencies.)