Euro Zone Bonds Surge After Fed's Interest Rate Update

Euro zone bond yields increased significantly after the U.S. Federal Reserve announced a rate cut, hinting at a slower pace of easing in 2025. Germany and Italy saw notable increases in their 10-year bond yields. The decision affects borrowing costs globally, with various central bank policies under scrutiny.

Euro zone bond yields experienced a significant rise on Thursday, following the U.S. Federal Reserve's anticipated interest rate cut, coupled with an indication of a slower pace of easing in 2025. Germany's 10-year bond yield, the barometer for the euro zone, escalated by 5 basis points, reaching 2.284%—its pinnacle since November 22.

In Italy, the 10-year yield climbed to its highest since November 26, rising 7 basis points to 3.467%. The yield gap between Italian and German bonds expanded by 4 basis points to 118 bps. Fed Chair Jerome Powell stated that further rate reductions hinge on continued progress in curbing inflation.

Money markets are now factoring in just 34 basis points of easing from the Fed for 2025, considering the U.S. government's influence on global borrowing costs. Meanwhile, U.S. Treasury yields surged, and central banks worldwide, including Japan's and England's, are closely watching these developments.

(With inputs from agencies.)