👉Key Points
Investors scale back bets on ECB rate hikes after recent remarks fade.
German finance agency to announce 2026 bond issuance plans.
Italy’s bond yield gap with Bunds reaches 16-year low.
Euro zone government bond yields edged lower on Thursday as markets awaited the European Central Bank’s (ECB) update on its “higher-for-longer” interest rate stance.
Investors reduced expectations for future ECB rate hikes following earlier comments from ECB board member Isabel Schnabel. Meanwhile, gilt yields in the UK rose after the Bank of England signalled caution regarding further rate cuts.
👉Germany:
10-year Bund yields fell 1.5 basis points to 2.85%, after reaching 2.894% last week.
30-year Bund yields declined 0.5 bps to 3.48%.
2-year Schatz yields decreased 0.5 bps to 2.14%.
The German finance agency will announce its bond issuance plans for 2026, with total Bund issuance expected to rise from €291 billion in 2025 to around €350 billion next year.
👉Italy:
10-year government bond yields fell 2.5 bps to 3.51%.
The spread versus German Bunds narrowed to 65.50 bps, reaching a 16-year low of 64.40 bps earlier in the session.
Market watchers will pay close attention to ECB staff projections, following President Christine Lagarde’s comments that growth forecasts could be revised. Money markets currently price in a roughly 15% probability of a rate hike by December 2026 and a 35% probability by March 2027, down from over 50% last week.
👉Analyst Note:
Geoff Yu, EMEA macro strategist at BNY, highlighted that euro strength and exchange rate competitiveness remain key considerations for the ECB, alongside potential impacts from global trade dynamics.
