LONDON: Euro zone government bond yields edged lower on Monday, stabilising after last week’s selloff, while investors watched for developments in scheduled talks between top U.S. and Chinese trade officials in London.
The European Central Bank last week cut interest rates by 25 basis points (bps) to 2%, as expected, but signalled it may be closer to the end of its current easing cycle than many had previously expected.
On Monday, benchmark 10-year Bund yields fell 2.2 basis points to 2.543%, having risen 5.4 bps last week.
Two-year German yields also edged down 2 bps to 1.852% Schatz yields rose 9 bps last week, marking their largest weekly increase since early March, when the German government announced the biggest overhaul in spending in decades.
10-year Italian yields dipped nearly 3 bps to 3.474%, while 10-year French debt was yielding 3.217%, down 1.8 bps. French bond markets were severely rattled a year ago when President Emmanuel Macron called a snap election following European parliamentary elections in which his party suffered dramatic losses.
Euro zone bond yields ease ahead of key US jobs data
A host of ECB officials are scheduled to speak this week, including board member Isabel Schnabel.
ECB policymaker Peter Kazimir on Monday said the central bank was nearly done with interest rate cuts and should watch data over the summer to determine whether more tweaks are necessary or not.
Traders are pricing in just one more rate cut for the rest of this year from the ECB, down from roughly two a week ago.
“The ECB is in a comfortable position with rates at the middle of the expected neutral range and inflation moving towards ECB’s target,” Jefferies strategist Mohit Kumar said.
“We are still keeping our view of one more rate cut in September as we expect a slowdown in the macro picture over summer months,” he said.
Longer-dated global bond yields have risen sharply this year, as investors everywhere have grown more concerned about debt levels in developed countries, in particular.
German 30-year bond yields, which on Monday were down 2 bps just below 3%, have risen by about 40 bps this year to close to their highest since mid-2011. U.S. 30-year Treasuries meanwhile are up nearly 20 bps at around 5%, nearing their highest since 2007.
Investors are demanding higher premia to hold longer-term bonds, but appetite for government debt has been robust this year.
Barclays strategists noted late last week that euro area banks in particular have been avid buyers of general government debt this year, to the tune of 173.6 billion euros ($198 billion) in the first quarter of 2025 alone, with 85.5 billion euros coming in the domestic markets.
“This was multiples higher than the demand seen in Q1 of the previous five years,” they said.
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