German 2-year yields set for weekly drop ahead of inflation data

By Stefano Rebaudo Jan 30 - German two-year government bond yields were set for their biggest weekly drop since October, with investors betting the European Central ‌Bank will factor in the deflationary drag from a stronger euro as it shapes its policy outlook. Investors are also awaiting the release of January inflation data ⁠from German states later on Friday.

By Stefano Rebaudo Jan 30 - German two-year government bond yields were set for their biggest weekly drop since October, with investors betting the European Central ‌Bank will factor in the deflationary drag from a stronger euro as it shapes its policy outlook.

Investors are also awaiting the release of January inflation data ⁠from German states later on Friday. The euro hit a five-year high against the greenback on Tuesday after U.S. President Donald Trump said the value of the dollar was "great" when asked if he thought it ​had declined too much.

German 2-year yields, which are more sensitive to expectations for policy rates, were ‍up 0.5 basis points (bps) at 2.06%. They were on track for a weekly decline of 6.5 bps, the biggest since October. Money markets priced in a chance of around 30% for an ECB rate cut in September, up from less than 10% ⁠a week ‌ago, while indicating a ⁠20% probability of a rate hike in April 2027, down from 50%.

Germany's 10-year government bond yield, the euro area's benchmark, ‍rose 1.5 bps to 2.87%. Long-dated U.S. Treasuries were sold in early London trading on Friday, with benchmark 10-year yields ​up 4 bps at 4.27%, on speculation Trump would nominate former Federal Reserve Governor Kevin Warsh ⁠to head the U.S. central bank and that he would push to reduce the amount of bonds the bank owns.

The ⁠30-year yield was up 1.5 bps at 3.49%. It rose to 3.556% in late December, its highest since summer 2011. The yield gap between French government bonds and safe-haven Bunds - a market gauge ⁠of the risk premium investors demand to hold French debt - widened to 58 bps after hitting a fresh ⁠19-month low of ‌55.26 bps on Tuesday.

Italy's 10-year government bond yields rose 0.5 bps to 3.52%. The gap versus Bunds was at 58 bps after tightening to 53.50 bps ⁠in mid-January, its lowest level since August 2008.

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