Euro Zone Bonds Steady Ahead of Fed Decision

Euro zone bond yields remained stable as investors awaited the U.S. Fed's rate decision, with a notable rise in France's risk premium post-Moody's downgrade. The U.S. rate cut and euro zone economic data are key market influences.

On Monday, euro zone government bond yields remained largely unchanged as investors held their breath for the upcoming U.S. Federal Reserve decision regarding interest rates later in the week.

The risk premium for French government debt, however, rose to its highest in a week following a surprise downgrade by Moody's on Friday. Specifically, France's 10-year bond yield increased by 2 basis points to 3.051%, widening the gap between French and German yields to 80 basis points, the largest since December 5. Germany's 10-year bond yield, considered the euro zone benchmark, was flat at 2.25%.

Attention is now turning to Wednesday's U.S. interest rate decision, where the Fed is expected to lower rates by 25 basis points. Given the global influence of the U.S. economy, this decision is anticipated to have significant repercussions on global financial markets. Meanwhile, European markets may also be influenced by survey-based data on the euro zone's economic health. Italy's 10-year yield edged 1 basis point higher to 3.39%, while Germany's two-year bond yield, responsive to European Central Bank rate forecasts, dropped 1 basis point to 2.045%.

(With inputs from agencies.)