Central Banks Rally as Euro Zone Bond Yields Rise Amid U.S. Political Tensions

Euro zone bond yields increased after central bank leaders supported Fed Chair Jerome Powell, following threats from the Trump administration. The U.S. inflation data suggests the Fed might keep interest rates steady. Meanwhile, European yield curves flattened due to Dutch pension fund hedging needs and ongoing economic transitions.

Euro zone bond yields rose on Tuesday, reversing Monday's decline, as central bank figures rallied behind Federal Reserve Chair Jerome Powell. This comes after the Trump administration's threat of criminal prosecution against Powell was met with criticism, even from within the Republican Party.

Germany's 10-year benchmark yield ticked up by 1 basis point to reach 2.81%, countering a previous decrease. Meanwhile, U.S. Treasury yields dipped, with inflation data reinforcing expectations that the Federal Reserve would keep interest rates unchanged this month.

In the euro zone, yield curves flattened as the Dutch pension fund PFZW reported unanticipated hedging requirements. Despite reforms suggesting pressure on long-term bonds, analysts warn that further flattening could occur as market assumptions are challenged by such updates.

(With inputs from agencies.)