Euro zone 10-year yields hold near multi-week highs, stocks in focus

Meanwhile, euro area inflation figures released by Eurostat met analyst expectations. Benchmark 10-year U.S. Treasuries yields were up 2.5 bps to 4.56% after dropping the day before as falling stock markets boosted demand for the safe-haven bonds, while markets kept pricing around a 50% chance of a Fed rate cut next month.

Euro zone 10-year yields held near multi-week highs on Wednesday as investors eyed stock markets, where a fresh selloff could trigger a rush into government bonds.

European shares hovered near a more than one-month low as tech valuation concerns kept investors cautious ahead of a high-stakes earnings report from AI poster-child Nvidia. U.S. stock index futures were slightly higher.

Germany's 10-year yields, the euro area's benchmark, were flat at 2.71% after hitting 2.718% early this week, their highest since October 7. ING analyst said the gap between Bund yields and asset swap rates indicates that the recent risk-off move has boosted demand for German government bonds.

"Over in Europe, the 10-year swap rate at 2.75% still looks relatively high in its range since Germany made its spending announcement," said Benjamin Schroeder, rate strategist at ING. "However, we have seen Bunds trade gradually richer over the past days with 10-year yields now standing 5 bps below the swap rate," he said, adding such moves mirrored rising hedging demand in equity markets.

The Bund asset swap spread was last at -4 basis points (bps), from zero on November 11. Meanwhile, euro area inflation figures released by Eurostat met analyst expectations.

Benchmark 10-year U.S. Treasuries yields were up 2.5 bps to 4.56% after dropping the day before as falling stock markets boosted demand for the safe-haven bonds, while markets kept pricing around a 50% chance of a Fed rate cut next month. Traders priced in about a 30% chance of a 25-basis-point move by September while they expected the key rate to be at 1.95% in December 2026 from the current 2%.

Germany's 2-year yields, more sensitive to expectations for the ECB policy rate outlook, fell 0.5 bps to 2.02%. They hit 2.051% early this week, their highest level since March 28. Italy's 10-year government bond yields were down one bp at 3.45%, after hitting 3.474% on Monday, their highest level since October 13.

The gap over safe-haven German Bunds - a key gauge of the extra return investors demand to hold Italian debt instead of German bonds – was at 75 bps, after hitting a fresh 15-year low at 70.68 bps. Citi warned in its morning note that the resilience of euro area government bond spreads "might be at risk" if risk-off sentiment in financial markets persists.

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