Euro zone yields edge down before central bank decisions, US data

The ECB deposit rate is currently at 2%. Benchmark 10-year U.S. Treasury yields fell 2.5 bps to 4.17% in London trade after rising 5.5 bps on Friday as investors assessed commentary from a flurry of Fed speakers and a positive outlook on the economy.

Euro zone government bond yields edged lower on Monday, kicking off a week packed with central bank policy meetings and ahead of Tuesday's U.S. jobs data, which could influence the Federal Reserve's policy outlook. The European Central Bank and the Bank of England will hold their meetings on Thursday, while the Bank of Japan will announce its rate decision on Friday.

Germany's 10-year yield, the euro area benchmark, was down 2 basis points (bps) at 2.84%. It hit 2.894% last week, the highest level since mid-March. According to Citi, Thursday's ECB meeting may offer "a hawkish hold by downplaying undershooting inflation projections" despite the tightening in long-term financing conditions.

Euro zone industrial output growth accelerated in October, bolstering views that the bloc is picking up momentum as trade uncertainty is dissipating. "The new (ECB) forecasts will now include 2028 and are expected to show that growth is above potential, closer to 1.4% and that inflation is at 2%," said Kevin Thozet, a member of the investment committee at Carmignac.

MORE HAWKISH POLICY PATH AHEAD FOR ECB? "Such projections send a dual message. First, that the region is moving in the right direction. Second, that investors should anticipate a more hawkish policy path ahead," he added.

Traders have priced in an ECB rate cut in 2026, while assigning around a 25% probability to a tightening move by December 2026 and a roughly 50% chance by March 2027. The ECB deposit rate is currently at 2%.

Benchmark 10-year U.S. Treasury yields fell 2.5 bps to 4.17% in London trade after rising 5.5 bps on Friday as investors assessed commentary from a flurry of Fed speakers and a positive outlook on the economy. "We do not think that the Fed delivered a hawkish cut, but some clients argue that the 2026 growth upgrade in the dot plots shows otherwise and are positioning for higher rates," said Reinout De Bock, strategist at UBS.

"Several clients told us that they plan to wait for December data on jobs and inflation before re-engaging with front-end trades," he added. The Deutsche Finanzagentur (DFA) calendar to be released on Thursday will also be in focus.

Commerzbank expects total Bund issuance to reach around 350 billion euros next year, up from 291 billion euros this year. German 30-year yields were down 2.5 bps at 3.46%. They reached 3.498% on Friday, the highest level since July 2011, as long-dated debt came under pressure on expectations for heavier bond supply.

Demand for ultra-long debt is set to shrink as Dutch pension funds, a key buyer, will no longer need to hold large amounts of these assets after an industry reform. The yield on the German 2-year Schatz was flat at 2.16%.

Italy's 10-year yields fell 4 bps to 3.52%. Yields on France's OATs dropped 3 bps to 3.55% with the gap against Bunds at 70 bps, with the country's 2026 budget bill still under discussion. It hit 69.10 bps in early December, its tightest since August 25.

France still has time to pass a budget before the end of the year, Finance Minister Roland Lescure said last week. Analysts argued that the path to pass the main budget bill by December looks narrow, raising the risk of renewed negotiations next year.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)