Eurozone Bond Yields Tumble Ahead of Key US Inflation Data

Euro area government bond yields fell as investors awaited U.S. inflation data, which could reveal the Fed's monetary strategy. German and Italian bond yields declined slightly, with the German yield curve flattening. Markets anticipate an unchanged ECB terminal rate despite rising long-term yields.

In a day marked by cautious anticipation, euro area government bond yields edged lower amid investor focus on forthcoming U.S. inflation data, a potential indicator of future Federal Reserve monetary policy. The economic figures are anticipated to illuminate the impact of tariffs on June's inflation trends.

Germany, serving as the euro area's benchmark, saw its 10-year yield decrease by one basis point to 2.71%, while the 30-year yield dropped to 3.24%, slightly down from its October 2023 highs. The 2-year yield, sensitive to ECB rate expectations, slipped to 1.87% amid a slight flattening of the yield curve.

The mild decline in Italian 10-year yields to 3.61% came as the spread between BTPs and Bunds settled at its lowest since 2015, marking a significant shift. Market forecasts suggest the ECB's terminal rate will remain steady, though long-term yield increases signal anticipated growth in German fiscal spending.

(With inputs from agencies.)