Bund yields ease from 17-year highs as energy prices drop, Fed in focus
TLT•Other European bond markets
German two-year bond yields DE2YT=RR, more sensitive to policy rates, were flat at 3.23%, after reaching 3.3123% on Monday, the highest since September 2023.
France’s 10-year government bond yields FR10YT=RR fell 1 bp to 4.49%, after hitting 4.5531% on Tuesday, the highest level since September 2008. The yield gap versus safe-haven Bunds DE10FR10=RR was at 96 bps after reaching 98.15 bps on Tuesday, the highest since July 2012.
Italy’s 10-year government bond yields IT10YT=RR rose 2.5 bps to 4.21%. The yield gap versus safe-haven Bunds was at 87 bps.
Bund yields ease as energy prices fall
Euro zone benchmark Bund yields eased from 17-year highs on Wednesday as traders paused on falling energy prices, after boosting European Central Bank rate-hike bets on inflation concerns and briefly pricing the deposit rate above 3.5% earlier this week.
Germany's 10-year bond yield was down 0.5 basis points at 3.53%, after reaching 3.5723% on Tuesday, the highest since June 2009.
Energy prices were lower with Brent crude futures retreating after a two-day rally following an unexpectedly large build in U.S. crude inventories and gas prices TRNLTTFMc1 dropping almost 3%.
Fed decision and ECB tightening expectations in focus
Markets also await the Federal Reserve policy meeting decision later in the session while betting heavily that policymakers will lift rates a quarter of a percentage point, to a 3.75%-4.00% range, and signal further tightening ahead.
Traders indicated the ECB's deposit rate at 2.86% by December, up from the current 2.50%. Markets saw the rate at 3.37% by November 2027, fully pricing a third increase and pointing to roughly a 50% chance of a fourth move.
The ECB raised rates last week for the second time this year to quell an energy-driven inflation rise and warned that price pressures could prove lasting, fuelling bets on more tightening.
