Euro zone bond yields hold steady as traders await ECB wage data

Euro zone government bond yields were little changed on Tuesday as investors waited for the European Central Bank to release wage data for the single-currency bloc. Germany's 10-year bond yield, the benchmark for the bloc, was last down 1 basis point (bp) at 2.402%.

Euro zone government bond yields were little changed on Tuesday as investors waited for the European Central Bank to release wage data for the single-currency bloc.

Germany's 10-year bond yield, the benchmark for the bloc, was last down 1 basis point (bp) at 2.402%. Yields move inversely to prices. The ECB will release data on wage deals across the euro area in the fourth quarter of 2023 at 1000 GMT (11:00 a.m. CET).

Negotiated wage growth hit a record high of 4.7% year-on-year in the third quarter. Many analysts expect it to have eased slightly in the final three months of the year. "We believe the ECB will want to wait for the first quarter data before cutting rates, but the fourth quarter 2023 data should provide some comfort that we can expect rate cuts by summer," said Michiel Tukker, senior European rates strategist at ING.

Some ECB policymakers, including President Christine Lagarde, have said they would like to see the outcome of wage deals struck in the first quarter before making a decision. That data is due in late May. Germany's 2-year bond yield, which is sensitive to interest rate expectations, was last down 1 bp at 2.826%.

Bond yields have risen this year as investors have reconsidered their expectations that central banks will cut interest rates sharply this year, as price pressures have stayed a touch stronger than expected and officials have continued to talk tough on inflation. The benchmark German 10-year yield hit an almost three-month high of 2.422% on Friday.

Analysts at Commerzbank said a small slowdown in wage growth could support German bonds on Tuesday, causing yields to fall slightly. Italy's 10-year bond yield was little changed at 3.901% on Tuesday.

The closely watched gap between Italian and German 10-year yields held steady at 148 bps after falling to 145.5 bps on Monday, its lowest since March 2022.