Euro zone 10-year yields ease, but rate hike concerns linger
TLT•Euro zone government bond yields fell as lower energy prices supported bonds, with France’s 10-year yield down 3 basis points to 4.71%. ECB rate hike concerns and higher U.S. Treasury yields limited gains ahead of a U.S. inflation report.
1. European yields fall
Euro zone bond yields fell as lower energy prices offered relief, with France’s 10-year yield dropping 3 basis points to 4.71%, its lowest since late September. The spread between French and German 10-year yields narrowed to as little as 142 basis points. Germany’s 10-year yield fell 1 basis point to 3.25%, while its two-year yield rose 1 basis point to 3.02% after ECB Chief Economist Philip Lane said a September rate hike might be prudent if conditions remained unchanged.
2. U.S. yields rise
U.S. Treasury yields rose after Federal Reserve Governor Christopher Waller said the Fed should raise short-term borrowing costs in December even if inflation data showed a slowdown. The U.S. two-year yield was up 7 basis points at 4.62%, and the 10-year yield rose 3 basis points to 4.89%. Markets were fully pricing in another ECB rate increase by February and saw slightly better than a two-in-three chance of a hike the following month.
