Euro Zone Yields Adjust as U.S. Inflation Moderates

Euro zone yields experienced a slight retreat after U.S. economic data indicated moderate price rises in June. This bolstered investor confidence in the Federal Reserve's potential rate cuts starting in September. German government bond yields showed minor fluctuations amidst weaker economic data from Europe, increasing expectations of ECB rate easing.

Euro zone yields pared their earlier rise on Friday after U.S. economic data showed U.S. prices rose moderately in June.

U.S figures underscored an improving inflation environment. Futures contracts tied to the Federal Reserve's policy rate edged up slightly, reflecting continued confidence in the prospect of a series of rate cuts starting in September.

Germany's 2-year government bond yields rose one basis point (bp) to 2.70% and is on track for an 8 bps weekly fall, the biggest since the week ending on June 14. It was up 4 bps before U.S. figures. Germany's 10-year yield, the euro area's benchmark, rose 1.5 bps to 2.43% and was set to end the week roughly unchanged.

Short-dated German borrowing costs were on track for their biggest weekly fall since mid-June as weak economic data from both sides of the Atlantic led investors to price in a quicker easing cycle from the European Central Bank. Surveys earlier this week showed that German business morale unexpectedly fell in July, and growth in euro zone business activity stalled.

Analysts argued that a fall in risky assets propped up bond prices sparking some safe-haven flows into fixed income.

(With inputs from agencies.)