Euro zone bond yields edge lower after US Treasury liquidity move

German two-year bond yields, which are more sensitive to interest rate expectations, fell 0.5 basis points (bp) to 2.85%.

Germany's 10-year bond yield was down 1 bp at 3.25%.

The yield gap between Italian government bonds and bunds <DE10IT10=RR> was at 78 bps. It was at 63 bps in February before the attack on Iran and hit 103.62 in late March, the widest since June 2025.

Euro zone government bond yields edged lower on Thursday, taking the lead from the U.S. market after the Treasury Department announced an increase in the size of liquidity operations to support long-dated coupon securities.

The aim of the U.S. government is to calm nerves with long yields under meaningful upward pressure, analysts said.

In early August, the U.S. Treasury also said that it would hold its coupon issuance and floating-rate note issuance steady "for at least the next several quarters."

Global borrowing costs climbed earlier this week as worries about persistent inflation and the prospect of higher fiscal spending weighed on bond prices.

Long-dated euro zone yields face less upward pressure than their U.S. counterparts, reflecting a more benign fiscal path and a lower debt burden, with debt at about 89% of GDP compared with around 120% in the United States, where total debt has surpassed $40 trillion.

Meanwhile, market bets on a European Central Bank rate hike remain around their highest levels since the start of the Middle East conflict and when oil prices were at around $120. Money markets fully priced a depo rate at 2.75% by March next year EURESTECBM5X6=ICAP, up from the current level of 2.25%.