Euro Zone Bond Yields Steady Amid Economic Data & Moody's Downgrade

Euro zone government bond yields remained stable amid economic data reflecting a sluggish economy and reduced inflation. Moody's downgraded France's credit rating, raising the risk premium on French debt. The European Central Bank considers further rate cuts, while U.S. interest rate decisions loom, impacting global bond markets.

In the latest financial developments, euro zone government bond yields held steady on Monday, despite a spate of European economic data indicating a sluggish economy and dwindling inflation. France experienced a rise in the risk premium on its government debt to its highest in a week following Moody's unexpected downgrade of France's credit rating last Friday, although this subsequently narrowed slightly.

The euro zone benchmark, Germany's 10-year bond yield, observed a minuscule drop of one basis point to 2.24%, with yields and prices moving in opposite directions. Recent data signaled a mild easing in the decline of euro zone business activity this month, marked by a rise in service sector activities. Despite this, demand pressures have led firms to scale back output and refrain from new hiring, explained Melanie Debono, senior Europe economist at Pantheon Macroeconomics.

European Central Bank President Christine Lagarde hinted at further rate cuts, conditional on data supporting their baseline. This comes amidst fluctuating bond yields, with France's 10-year bond yield recently increasing slightly to 3.03%. The week's main focus is the U.S. interest rate decision, with expectations of a rate cut. A firm stance by the Fed on future rate cuts could affect the U.S. bond markets, potentially influencing Europe.

(With inputs from agencies.)