Euro Zone Bond Yields Stable as Investors Await Key Economic Data

Euro zone bond yields remained steady as investors anticipate wage and growth data to clarify interest rate expectations. The German 10-year bond yield dropped to 2.518%, while the focus remains on first quarter negotiated wage figures and PMI data expected on Thursday.

Euro zone bond yields were little changed on Tuesday as investors waited for wage and survey-based growth data later in the week to provide more clues on the path of interest rates.

The German 10-year bond yield, the benchmark for the euro zone bloc, fell 1 basis point (bp) to 2.518%. The yield, which moves inversely to the price, has risen from a one-month low of 2.398% touched last week as central bankers have said they remain cautious about cutting interest rates.

A key focus for European investors this week is the release of first quarter negotiated wage figures for the euro zone on Thursday. European Central Bank officials

have long said they need to see slower increases in wages to be confident that inflation in the bloc is on a sustainable downward path. A closely watched survey-based gauge of the private sector - the purchasing managers' index (PMI) - will be released on Thursday and is expected to show growth continued in May.

"Several ECB speakers have recently indicated that a rate cut in June is highly likely, while ECB action thereafter will depend on future data," UniCredit strategists said in a note. "Eurozone PMIs and ECB negotiated wages, to be published on Thursday, might shed further light in this respect."

Italy's 10-year yield was steady at 3.86%, and the gap between Italian and German bond yields widened 1 bp to 129 bps. Germany's two-year bond yield, which is sensitive to European Central Bank rate expectations, was 1 bp lower at 2.985%.

Markets see a June ECB cut as a near certainty but there is more doubt about what will follow. European bonds have often been driven by expectations about the Federal Reserve over the last two years, given the size and importance of the U.S. economy.

On Monday, Fed policymakers

said they were not ready to say inflation is heading to the central bank's 2% target, even after data last week showed an easing in consumer price pressures in April. Data on Tuesday showed that

German producer prices fell more than expected in April, due mainly to lower energy prices. The spread between U.S. 10-year Treasuries and German bond yields was flat at 191 bps, down from an almost five-year high near 220 bps in April.