Euro Zone Bond Yields Drop Ahead of Crucial Fed Decision

Euro zone government bond yields slightly decreased as investors anticipated the Federal Reserve's rate decision amidst a busy week for central bank policy meetings. The market expects the Fed to commence its easing cycle, while the Bank of England and the Bank of Japan are likely to maintain current rates.

Euro zone government bond yields edged lower on Monday as investors awaited the Federal Reserve rate decision in a week packed with central bank policy meetings.

Markets expect the Fed to start its easing cycle, while the Bank of England and the Bank of Japan are considered likely to hold. According to the CME FedWatch tool, money markets have fully priced in 25 basis points of rate cuts by the Fed this week with a 59% chance of a 50 bps move.

Germany's 10-year yield, the benchmark for the euro zone bloc, was down 2 basis points (bps) at 2.13%, and Italy's 10-year yield was lower by 1.5 bps at 3.50%. The spread between Italian and German Bunds, a measure of the risk premium investors demand to hold Italian government bonds, stood at 137 bps. Germany's two-year yield, which is more sensitive to changes in ECB rate expectations, dropped 2 bps to 2.19%.

(With inputs from agencies.)