European Bond Markets Steady Amid Mixed Signals and Fiscal Focus

European bond markets saw stabilizing Bund yields this week, influenced by U.S. economic indicators and fiscal policy expectations. Investors shifted focus from monetary policies to notable fiscal stimulus forecasts in the euro zone. Germany's yields are expected to remain stable, while Italy's fiscal discipline attracts increased demand for its debt.

Euro area benchmark Bund yields remained steady this week, following mixed movements in U.S. Treasuries influenced by varying economic signals. Germany's 10-year yields increased 2 basis points to 2.838%, marking a minor weekly rise. In comparison, the U.S. 10-year Treasury yield edged up 3 basis points to 4.19%, reacting to unexpectedly strong economic data.

Investors are pivoting their attention toward fiscal policy due to the European Central Bank's expected steady rate stance through 2026. The gap between U.S. Treasuries and Bunds is 135 bps, with a focus on fiscal policy expansion predicting a euro zone economic growth of around 1%, especially in Southern Europe.

Despite geopolitical risks, sovereign bond markets are concentrating on economic fundamentals and German fiscal stimuli. Italian bonds continue to attract strong demand due to impressive fiscal discipline, highlighting a spreading capex upswing beyond AI sectors in the euro area.

(With inputs from agencies.)