Euro zone government bond yields edged down on Monday, with investors cautious ahead of the Federal Reserve policy meeting and the bloc’s inflation data, after scaling back bets on future European Central Bank rate cuts last week.
The euro area’s fixed-income market has recently tracked moves in US Treasuries, while the yield gap between the Bund and the 10-year Treasury - a gauge of the expected divergence between the ECB and the Fed policy paths - was at 208 basis points (bps).
It hit 220.92 in mid-April, its highest level since the end of 2019.
Germany’s 10-year government bond yields - the bloc’s benchmark - fell 1.5 bps at 2.56%.
They hit 2.647% on Thursday, its highest level since the end of November.
Money markets discounted 68 bps of ECB monetary easing in 2024, which implies two 25 bps rate cuts and about a 70% chance of a third move by year-end, from 67 bps late on Friday.
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Germany’s 2-year yields - more sensitive to policy rate expectations - dropped one bp to 2.98%.
Italy’s 10-year yield, the benchmark for the euro area’s periphery, was down 2.5 bps to 3.87%.
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