Euro zone yields edge lower tracking oil, US Treasuries, before ECB meeting
TLT•Euro zone government bond yields edged lower as oil prices and US borrowing costs fell, ahead of the ECB’s policy decision. ECB President Christine Lagarde also announced she will step down in February.
1. Yields edged lower
Germany’s two-year government bond yield fell 1.5 basis points to 3.08%, while its 10-year yield declined 0.5 basis points to 3.37%. The gap between French and German 10-year yields was roughly unchanged at 154 basis points, after reaching 177.70 last week, its highest since November 2011.
2. ECB outlook in focus
Investors expected the ECB to offer no guidance on its rate outlook after its policy meeting. Euro short-term rate forwards implied a deposit rate of 2.71% by December, from 2.50% currently, and 3.24% by late 2027. Lagarde announced she will step down in February.
3. Oil and rate expectations
Brent crude futures fell about 1% after media reports said US Vice President JD Vance had sent a letter to Iran’s Supreme National Security Council chief Mohsen Rezaei seeking to revive peace negotiations. Traders had scaled back bets on future ECB rate hikes in early October, and those bets had remained stable since then. The Federal Reserve held rates steady on Wednesday.
