Euro zone bond yields hold close to multi-week highs, stock market in focus

Benchmark 10-year U.S. Treasuries yields were up 2.5 bps to 4.56% after being down the day before as falling stock markets boosted demand for the safe-haven bonds, while markets kept pricing around a 50% chance of a Federal Reserve rate cut next month. Traders priced in about a 30% chance of a 25-basis-point move by September while they expected the key rate to be at 1.95% in March 2027 from the current 2%.

Euro zone yields held near multi-week highs on Wednesday as investors eyed stock markets, where a fresh selloff could trigger a rush into safe-haven government bonds.

Stocks struggled to make headway as a bout of nerves over AI valuations held back investors ahead of an earnings update from chip titan Nvidia. Germany’s 10-year yields, the euro area’s benchmark, dropped 0.5 basis points (bps) to 2.70%. It hit 2.718% early this week, its highest since October 7.

Investors also awaited October’s final inflation data and flash wage figures due later in the session. Benchmark 10-year U.S. Treasuries yields were up 2.5 bps to 4.56% after being down the day before as falling stock markets boosted demand for the safe-haven bonds, while markets kept pricing around a 50% chance of a Federal Reserve rate cut next month.

Traders priced in about a 30% chance of a 25-basis-point move by September while they expected the key rate to be at 1.95% in March 2027 from the current 2%. Germany’s 2-year yields, more sensitive to expectations for ECB policy rate outlook, fell 0.5 bps to 2.02%. They hit 2.051% early this week, their highest level since March 28.

Italy’s 10-year government bond yields were down one bp at 3.45%, while their gap over safe-haven German Bunds - a key gauge of the extra return investors demand to hold Italian debt instead of safe-haven German bonds – was at 75 bps, after hitting a fresh 15-year low at 70.68 bps.