Euro zone yields nudge higher as inflation hits 4%, investors weigh US midterms
TLT•Euro zone inflation rose to 4% in October, a three-year high, and German 10-year bond yields ticked higher. Markets priced in about a 72% chance of an ECB rate hike in December.
1. Inflation and yields
Euro zone inflation rose to 4% in October from 3.8% a month earlier, in line with economists’ expectations. Core inflation held at 2.5%. German 10-year bond yields were up 1.5 basis points at 3.3253%, while US 10-year Treasury yields fell 1.7 basis points to 4.9311%.
2. ECB rate outlook
Markets priced in roughly a 72% probability of an ECB rate hike in December, slightly higher than before the inflation data. Bundesbank President Joachim Nagel said a December increase was “very likely necessary” from the current perspective. Traders priced in two further 25-basis-point hikes by mid-2027.
3. Energy price pressures
Jack Allen-Reynolds of Capital Economics said the energy price spike had not yet substantially affected domestic price pressures. He said higher energy costs could feed more noticeably into food and core inflation in coming months, while a December hike could mark the end of the ECB’s tightening cycle.
