Euro Zone Bond Yields Steady Ahead of Fed Decision

Euro zone bond yields remained stable on Tuesday, a day before the U.S. Federal Reserve decision on interest rates. The decision could influence the European Central Bank's monetary policy. German 10-year yields slightly dipped, while German economic sentiment fell to its lowest since October 2022.

Euro zone bond yields held steady on Tuesday, ahead of the U.S. Federal Reserve's upcoming interest rate decision, which could influence expectations for the European Central Bank's next steps in monetary policy.

German 10-year yields, a benchmark for the euro zone, dipped by 1.4 basis points to 2.106% in midday trading. Since the start of September, Bund yields have dropped nearly 20 basis points. Meanwhile, two-year Schatz yields, which are highly sensitive to changes in ECB policy expectations, rose by nearly 1 basis point to 2.185%.

ECB chief economist Philip Lane suggested a gradual approach to easing monetary policy, conditional on forthcoming data aligning with baseline projections. However, Slovakia's central bank chief, Peter Kazimir, cautioned against quick cuts without clearer evidence of inflation returning to target levels by late 2025. Traders speculate that the ECB is likely to lean toward a 25 basis-point cut in the December meeting rather than October, coinciding with a U.S. Federal Reserve rate cut expected on Wednesday.

German investor morale deteriorated more than anticipated in September, according to the ZEW economic research institute, as economic sentiment hit its lowest point since last October. The index dropped to 3.6 points from 19.2 points in August, missing analysts' predictions of a 17.0 point reading.

(With inputs from agencies.)