German 10-year yields hit a fresh one-month high on Thursday, tracking moves in US Treasuries after the Federal Reserve minutes and ahead of US inflation data later in the session.
US yields rose on Wednesday, as investors continued to price in a less aggressive policy loosening path from the Fed.
Fed minutes showed that a “substantial majority” supported a 50 bps rate cut in September, without committing the Fed to a particular pace of cuts in the future.
Some analysts argued that benign inflation figures could bolster expectations for Fed rate cuts in November and December.
Money markets currently price in 46 bps of rate cuts by year-end. Germany’s 10-year bond yield, the benchmark for the euro zone bloc, was up 2 bps to 2.279%, its highest level since Sept. 4.
Markets are pricing in an around 90% chance of a 25 bps rate cut by the European Central Bank in October.
Germany’s two-year bond yield, which is more sensitive to ECB rate expectations, was up one bp at 2.278%, its highest level since mid-September.
German bond yields edge lower with focus on Fed
The gap between French and German 10-year yields - a gauge of the risk premium investors demand to hold France’s government bonds - was last at 79 bps, with Prime Minister Barnier set to present the budget bill for 2025 later in the session.
Italy’s 10-year government bond yield rose 1.5 bps to 3.58%, with the gap between Italian and German yields at 130 bps.
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