Euro zone government bond yields increased slightly on Tuesday, recovering from a seven-month low. The bounce followed firmer U.S. data, which alleviated concerns of an imminent recession. Germany's 10-year yield rose 1 basis point to 2.191%, having recovered from Monday's low of 2.074%.
The recovery in yields was driven by robust U.S. services sector data, which signaled a rebound from a four-year low in July. This eased recession fears initially stoked by a weak U.S. labor market report. Market expectations for Federal Reserve rate cuts by year-end have been reduced from 130 basis points to around 112 basis points.
Germany's two-year yield, more sensitive to central bank easing expectations, rose 4 basis points to 2.371%, after hitting its lowest level since March 2023 on Monday. Sharp market swings were attributed to heavy positioning, carry trade unwinding, summer illiquidity, and geopolitical concerns, according to Jefferies' chief Europe economist Mohit Kumar.
(With inputs from agencies.)
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