Euro zone bond yields dip, retreating from week's highs

Euro zone bond yields dipped on Thursday, pulling back slightly from recent highs, as expectations of a June rate cut by the European Central Bank held firm and a recent surge in oil prices showed signs of losing steam.

Euro zone bond yields dipped on Thursday, pulling back slightly from recent highs, as expectations of a June rate cut by the European Central Bank held firm and a recent surge in oil prices showed signs of losing steam. ECB policymakers continued to line up behind a June interest rate reduction, but markets now see just three rate cuts this year, a big retreat from two months ago when between four and five moves were expected.

That is in contrast to the United States, where the Federal Reserve is re-evaluating the need for interest rate cuts this year in the face of resilient economic data and ongoing strength in the labour market. Germany's 10-year bond yield, the benchmark for the euro zone, was last 2 basis points (bps) lower at 2.45%. It hit its highest level since late February on Tuesday, recovering from a drop late last week when investors snapped up safe assets on rising Middle East tensions.

Yields move inversely to prices. Thursday's pullback in yields was likely a correction that was also visible in the oil prices, said Althea Spinozzi, head of fixed income strategy at Saxo Bank.

"If you look at yields on 10-year U.S. Treasuries, 10-year bunds, 10-year gilts, they all remain in an uptrend and the correction we are seeing is quite normal," Spinozzi said. "Inflation is the main driver of the bond performance, and we cannot ignore that all these CPI reports that we have seen recently showed that CPI seemed to be a bit stickier."

Yields in Europe were also catching up with their counterparts in the U.S. after strong demand at the 20-year note auction drove yields lower, Spinozzi added. The benchmark U.S. 10-year yield was down 1 bps on Thursday at 4.5772%, after a 7 bp drop the day before.

Oil prices were little changed on Thursday after a 3% drop in the previous session. Mohit Kumar, chief Europe economist at Jefferies, wrote in a note that a further rise in oil prices remained the biggest risk.

The German 2-year bond yield, most sensitive to expectations for policy rates, was down 1 bps to 2.95%. Italy's 10-year bond yield was last 3 bps lower at 3.85%, after surging to its highest level since March 1 on Tuesday.

Analysts will be watching for clues from a slew of central bank speakers due during the day and also will be monitoring the U.S. jobless claims data due later on Thursday.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)