Euro Zone Bond Yields Drop Amid Inflation Data from France and Spain

Euro zone government bond yields fell on Friday following inflation data from France and Spain. Investors await U.S. figures which could influence monetary policy expectations. France and Spain showed lower than expected inflation rates. Germany's bond yields fell, with a notable narrowing of the risk premium between French and German bonds.


Devdiscourse News Desk | Updated: 27-09-2024 12:48 IST | Created: 27-09-2024 12:48 IST
Euro Zone Bond Yields Drop Amid Inflation Data from France and Spain
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Euro zone government bond yields dropped on Friday after inflation data from France and Spain showed lower than expected rates, with investors keenly awaiting U.S. figures that could impact monetary policy stances on both sides of the Atlantic.

In September, French consumer prices rose less than economists had anticipated, helped by a dip in energy costs. Spain's EU-harmonised 12-month inflation fell to 1.7%, below the 1.9% forecasted by analysts, according to a Reuters poll. Germany and euro area inflation figures are anticipated next week, and markets will closely monitor the U.S. Personal Consumption Expenditure (PCE) figures, a key inflation gauge for the Federal Reserve, later today.

Germany's 10-year bond yield, the benchmark for the euro zone, dropped 3.5 basis points to 2.14%. Market expectations for a 25 basis point rate cut by the European Central Bank in October increased to over 70%, up from around 20% earlier this week. Germany's two-year bond yield, sensitive to ECB rate anticipations, decreased by 3 basis points to 2.08%, hitting a low of 2.079% on Thursday, its lowest since December 2022.

The gap between French and German 10-year yields, an indicator of the risk premium for holding French government bonds, was last at 79 basis points, down from 70 basis points two weeks ago. It had previously widened to over 85 basis points during France's parliamentary elections, reaching its largest margin since 2012. Budget Minister Laurent Saint-Martin cautioned that the deficit might exceed 6% of economic output, significantly above the 5.1% estimated by the previous government in the spring.

Italy's 10-year yield dropped 4 basis points to 3.44% while the spread between Italian and German yields narrowed to 128 basis points.

(With inputs from agencies.)

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