Euro Zone Bond Yields Remain Steady Amid Economic Data and Policy Projections

Euro zone bond yields ended the week mostly unchanged despite Thursday’s economic data. Borrowing costs rose slightly after a four-day decline. Investors watched closely as the European Central Bank held steady on its easing cycle while anticipating dovish remarks from Federal Reserve Chair Jerome Powell.

Euro zone government bond yields closed the week relatively unchanged, balancing out the rise following Thursday's economic data.

After a four-day downturn, borrowing costs ticked up on Thursday, with the European Central Bank maintaining its easing cycle stance amidst euro area economic figures. Euro zone fixed income markets mirrored U.S. Treasury yield movements, which declined as investors expected dovish signals from Federal Reserve Chair Jerome Powell's anticipated Jackson Hole speech on Friday at 1400 GMT.

Germany's 10-year yield rose by 0.5 basis points to 2.25%, poised for a one bp weekly decrease. Despite speculations on Powell's potential impact, markets priced in 97 bps of Fed rate cuts by year-end and 190 bps by mid-2025. ECB rate cuts stood at approximately 65 bps by year-end, suggesting two easing moves and a 60% probability of a third cut.

ECB policymaker Martins Kazaks reaffirmed two expected rate cuts for the year, while euro zone inflation expectations remained unchanged for a third consecutive month. Investors assessed positive influences, such as the Paris Olympic Games boosting French service sector confidence.

Negotiated wage growth in the euro zone fell to 3.55% in Q2, impacted by Germany's slowdown. Italy's and Germany's bond yield spreads fell slightly, reflecting a steady outlook amidst political movements in France as President Emmanuel Macron navigates budgetary and leadership challenges.

(With inputs from agencies.)