Euro zone bond yields rise as traders weigh rate bets from the Fed and ECB.

Euro zone bond yields rise as traders weigh rate bets from the Fed and ECB.
Euro zone bond yields rise as traders weigh rate bets from the Fed and ECB.

Euro zone yields rose on Wednesday, after falling to multi-week lows this week, as markets weigh the impact of investors increasing their bets on interest rate cuts from the Federal Reserve and of the European Central Bank this year.

After the recent release of poor US employment data, money markets are pricing in two rate cuts from the Fed this year and monetary easing of around 40 basis points. Markets also expect the ECB to cut rates by around 70 basis points in 2024.

Previously, a string of positive data had led investors to expect fewer than two Fed rate cuts for 2024, down from about seven at the start of the year.

After hitting its lowest level since April 15 on Tuesday, the yield on German 10-year bonds, the benchmark for the euro zone, rebounded, rising 3.5 basis points (bps) to 2.45%.

“With the recent move lower in yields, we believe we are nearing the end of rising rates,” said Mohit Kumar, chief economist for Europe at Jefferies.

He added that while Jefferies projects about 50 basis points of potential Fed cuts this year, which is above market consensus, he doesn’t expect yields to fall much.

“At current levels, we believe this is more of a consolidation than a further decline.

Regarding the data,

Italian retail sales

remained stable in March compared to the previous month, after increasing by 0.1% in February. While the

German industrial production

fell 0.4% in March, less than the 0.6% drop forecast by analysts polled by Reuters.

“We continue to think there are a lot of weak spots in the economic data, and traders should exercise caution when being overly optimistic,” said Naeem Aslam, chief investment officer at Zaye Capital Markets.

RIKSBANK CUTOFF

Elsewhere, the Swedish bank

central bank

cut its key interest rate from 4.00% to 3.75%, as planned, and said it was likely to cut the rate two more times in the second half of the year if Inflationary pressures remain low.

“The decline in May was estimated at around 80%, and the market therefore

Market reactions have so far been quite muted,” Danskebank analysts said in a note.

The Swedish 10-year yield was up 4.4 basis points at 2.37%, after briefly falling to its lowest level in two months.

The Italian 10-year yield was up 3.3 basis points at 3.79%, and the gap between Italian and German bond yields widened by 0.9 basis points to 133 basis points.

The yield on German two-year bonds, which is more sensitive to ECB rate forecasts, was up 0.2 basis points at 2.92%. (Reporting by Joice Alves; editing by Andrew Heavens and Toby Chopra)

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