Euro Zone Bonds on the Rise Amid ECB Rate Cuts and Inflation Worries

Euro zone bond yields increased following the ECB's interest rate cut and its vigilant stance on inflation. Germany's bond yields climbed as analysts debated the ECB's future moves. Meanwhile, markets are focused on the Federal Reserve's anticipated rate cut, with U.S. data signaling potential policy shifts.

Euro zone bond yields rose on Friday shortly after the European Central Bank (ECB) reduced interest rates, simultaneously expressing caution regarding inflation. This marked the third consecutive day of increasing yields as markets brace for a potentially hawkish rate cut from the U.S. Federal Reserve next week. Germany's 10-year bond yield, serving as the euro zone's benchmark, increased by 4 basis points to 2.23%, reaching its highest point in over two weeks.

The ECB's decision on Thursday to lower rates by 25 basis points to 3% stirred euro zone markets. While analysts were divided on the ECB's signals for further cuts, ECB President Christine Lagarde emphasized ongoing concerns with domestic inflation and affirmed vigilance against price growth. Jussi Hiljanen of SEB expressed skepticism about any upward trend in German yields unless significant shifts occur in the ECB's outlook.

Meanwhile, U.S. markets are poised for a Federal Reserve rate cut next week, backed by data indicating a rise in joblessness and higher-than-expected producer price inflation. Italy's 10-year yield also climbed, echoing euro zone trends and highlighting international anticipations of monetary policy adjustments.

(With inputs from agencies.)