ECB's Monetary Stance Keeps Euro Zone Yields Steady

Euro zone bond yields remained steady as investors awaited the European Central Bank's confirmation of its prolonged higher rate stance. Despite earlier decreased expectations for ECB rate hikes, German bonds saw minimal movement, with Germany’s 10-year yield slightly dipping to 2.86%. Meanwhile, long-dated debt anticipated increased bond supply.

Euro zone government bond yields held steady on Thursday in anticipation of the European Central Bank (ECB) reaffirming its commitment to a prolonged higher rate stance. Investors have adjusted their expectations concerning future ECB rate hikes, influenced by earlier comments from ECB board member Isabel Schnabel.

Attention is also directed towards the Bank of England, with announcements expected on Thursday, while the Bank of Japan will convey its decisions on Friday. Germany's 10-year yield, the primary benchmark for the euro area, dipped slightly to 2.86%, down by 0.5 basis points from last week's peak of 2.894%, the highest since March.

In money markets, the probability of a tightening move by December 2026 dropped to around 12%, with a 35% chance by March 2027, a significant decrease from over 50% the previous week. The current ECB deposit rate stands at 2%, while German 30-year yields rose by 0.5 basis points to 3.49%, reflecting pressure on long-term debt amid expectations of heavier bond supply. Italy's 10-year government bond yields decreased slightly, with the spread compared to Bunds reaching a record low in 16 years.

(With inputs from agencies.)