Eurozone government bond yields edge down before central bank policy meeting

Germany’s 10-year bond yield, the euro area’s benchmark, falls 1.5 basis points to 2.56%

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Published Thu, Jan 30, 2025 · 04:22 PM

A view of Paris, France. The yield spread between French OATs and German Bunds falls to 74 basis points as French budget talks teeter on the brink of collapse. PHOTO: BLOOMBERG

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EUROZONE government bond yields edged lower on Thursday (Jan 30), ahead of a European Central Bank (ECB) policy meeting which is widely expected to cut rates by 25 basis points and keep the door open to further policy easing.

While ECB president Christine Lagarde is unlikely to commit explicitly to more cuts, she is likely to argue that the direction of policy remains clear and that the risk of a trade war with the United States could further sap weak growth.

Germany’s 10-year bond yield, the euro area’s benchmark, fell 1.5 basis points (bps) to 2.56 per cent.

US 10-year Treasury yields dropped 3.5 bps to 4.52 per cent in early London trading. They reversed an earlier rise on Wednesday after Federal Reserve chair Jerome Powell said he expected to see further progress on inflation.

Money markets priced in a 94 per cent chance of a 25 bps ECB rate cut on Thursday, and a deposit facility rate of 2.1 per cent at the end of 2025 from the current 3 per cent.

Germany’s two-year bond yield, more sensitive to ECB rate expectations, was down 2 bps at 2.25 per cent.

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Italy’s 10-year yield was 0.5 bp lower at 3.65 per cent. The gap between Italian and German yields – a market gauge of the risk premium investors demand to hold Italian debt – stood at 105.5 bps.

The yield spread between French OATs and German Bunds fell 0.5 bp to 74 bps as French budget talks teetered on the brink of collapse on Wednesday.

The spread widened to around 90 bps, its highest since 2012, in mid-January and end-November amid fears that France would be unable to cut its growing budget deficit. REUTERS

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