Ekonomické zprávy

Eurozone bond yields are showing negative dynamics

The yield on eurozone government bonds has significantly decreased, while market participants are assessing the results of the Fed meeting and are preparing for the announcement of the ECB's interest rate decision.

German 10-year bond yields fell by 3.3 basis points to 2.258%. The yield on France's 10-year bonds fell by 4.0 basis points to 2.72%, while the yield on Italy's 10-year bonds fell by 7.8 basis points to 4.214%. The closely watched gap between Italian and German 10-year yields is now 196 basis points. On Monday, it reached its highest since January 4 at 205 basis points.

The Fed, as expected, raised the interest rate by 25 basis points, to 4.5-4.75%. At the previous meeting, the rate was raised by 50 bps. Meanwhile, the tone of Fed Chairman Jerome Powell's statements gave market participants hope that the rate hike cycle could soon end.

As for the ECB meeting, experts note that overall inflation is showing signs of decline, which should support the prospects for consumer spending in the future. At the same time, the European Central Bank (ECB) is currently the most hawkish central bank in the world, and experts expect it to remain committed to this hawkish rhetoric by raising the rate by 50 bps. The message is likely to be that, although overall inflation is declining, core inflation is still uncomfortably high and has not yet shown significant signs of decline. The ECB is also likely to announce that a similar degree of policy tightening will be required at the next meeting to prevent a sharp increase in inflation expectations. President Lagarde is also likely to indicate that subsequent decisions will depend on the data, which could mean a peak rate of 3.25% by the 2nd quarter of 2023.

At the same time, experts warn that the likely discrepancy between the cycles of tightening the ECB and the Fed policy may provoke a further narrowing of the spread of US and German bond yields, since interest rates in the eurozone are expected to rise more than in the US.

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