German Bond Yields Narrow As Fed Signals Possible December Rate Cut

German government bond yields dipped slightly on Monday, remaining close to their smallest discount to U.S. Treasury yields in a month. This follows New York Fed President John Williams' comments suggesting a possible rate cut in December. This optimism could influence European Central Bank policies.

In early Monday trading, German government bond yields showed a modest decline, nearly maintaining their smallest discount to U.S. Treasury yields in a month. This comes after New York Fed President John Williams hinted at a possible December rate cut, providing a boost to U.S. debt prices last week.

Despite German bond yields easing by just 1 basis point to 2.688%, the discount to Treasuries narrowed to 136.4 bps, marking the closest margin since late October. This trend highlights the growing anticipation among traders of repeated Fed rate cuts into 2026, with the European Central Bank expected to hold rates steady over the next year.

The potential for U.S. rate cuts injected optimism into risk assets like stocks, theoretically redirecting investment away from safer bonds. Meanwhile, ECB officials suggest inflation will hover around the 2% target, maintaining the current macro outlook. A survey of German business confidence is set to be released, expected to nudge slightly up from the previous month.

(With inputs from agencies.)