Euro Zone Bond Yields Fall as U.S. Core Inflation Softens

Euro area benchmark Bund yields declined after a 10-day rise, influenced by a softer-than-expected U.S. core inflation rate. Germany's 10-year yield fell by 8 bps, while Euro zone industrial production showed no major signs of recovery. Interest rate futures traders adjusted expectations for Fed rate cuts.

Euro area benchmark Bund yields fell on Wednesday, ending a 10-day upward trend, following a lower-than-expected U.S. core consumer price inflation in December, which reignited hopes of two Federal Reserve rate cuts in 2025. The core inflation rate, excluding food and energy, was 3.2%, slightly below the anticipated 3.3%.

Earlier, Germany's 10-year yield witnessed a decline, which intensified post-data release, closing down 8 basis points at 2.543%. This came after marking a seven-month peak at 2.63% earlier in the day. This shift occurs amid robust economic data and concerns over inflationary policies from U.S. President-elect Donald Trump.

U.S. 10-year Treasury yields similarly dropped 11 bps to 4.6694%, after reaching 4.8090% on Tuesday, marking a high not seen since November 1, 2023. Meanwhile, Italy's 10-year government bond yield decreased by 12 bps at 3.708%, reflecting improved investor sentiment as the yield gap with Germany narrowed.