Euro Zone Bond Yields Drop Amid Cooling Inflation

Euro zone government bond yields dropped as recent data indicated a cooling inflation and a slowdown in the economic momentum for December. Notably, consumer prices in France rose less than anticipated. German yields and oil prices also fell in response to these developments, affecting ECB's policy expectations.

Euro zone government bond yields saw a decline on Tuesday, prompted by data that suggested a cooling in inflation and confirmed a loss of economic momentum in the bloc as the year concluded.

Consumer prices in France increased marginally less than anticipated, while Germany's largest state, North Rhine-Westphalia, experienced a 1.8% hike. Meanwhile, HCOB's final composite Purchasing Managers' Index data for December revealed a deceleration in economic expansion, although the quarter ended with the strongest growth seen in over two years.

Amid these developments, Germany's 10-year yields dropped by 2 basis points, reaching 2.86%. This marks a decrease from the earlier high of 2.917% just before Christmas, related to a political deal for increased infrastructure and defense spending. Concurrently, oil prices fell as higher Venezuelan crude output is anticipated, following the U.S. capture of President Nicolas Maduro. Markets have adjusted their expectations on ECB's policy moves, reducing the chances of tightening by December 2026.

(With inputs from agencies.)