Euro Zone Bond Yields Rise Ahead of German Inflation Data

Euro zone government bond yields increased before the release of German inflation data, which may impact expectations for European Central Bank monetary policy. French and Spanish consumer prices rose less than anticipated, leading to speculation about future ECB rate cuts. The gap between different European bond yields also shifted.

Euro zone government bond yields edged higher on Monday before German inflation data later in the session, which could affect expectations for the European Central Bank's monetary policy.

Data revealed on Friday that French and Spanish consumer prices rose less than expected in September, leading investors to raise their bets on future ECB rate cuts. Euro area figures are due on Tuesday. Germany's 10-year bond yield, the benchmark for the euro zone, remained flat at 2.13%.

Markets priced in an 80% chance of a 25 basis points (bps) rate cut by the ECB in October and a 53 bps cut by December, close to the levels seen late Friday. Germany's two-year bond yield, which is more sensitive to ECB rate expectations, decreased by one bp to 2.10%, hitting its lowest level since December 2022.

The spread between Austrian and German 10-year yields widened by 0.5 bps to 50 bps after Austria's far-right Freedom Party (FPO) gained 28.8% of the vote in parliamentary elections, although other party leaders rejected forming a coalition with the FPO.

The gap between French and German 10-year yields was at 79.5 bps. It reached its widest since 2012, beyond 85 bps during France's parliamentary elections. Italy's 10-year yield was up 0.5 bps at 3.46%, and the gap between Italian and German yields tightened to 132 bps.

(With inputs from agencies.)