Euro zone government bond yields dropped on Wednesday after a batch of mixed economic data both in Europe and the US amid persistent concerns about a US tariff-induced economic slowdown.
German and French inflation data came in slightly higher than expected, but continued to cool, Wednesday data showed, and Italian inflation was lower than expected.
Taking that into account, analysts at Nomura said they now expect euro zone wide inflation data, due on Friday, to be at the European Central Bank’s 2 percent target.
“Disinflation appears likely to remain on track, which will be of comfort to the ECB,” they said.
That offered support to bonds, and Germany’s 10-year yield, the euro area’s benchmark, dropped 4 basis points (bps) to 2.45 percent.
Money market pricing now reflects expectations the ECB’s key deposit facility rate will be at 1.60 percent in December. That implies two 25 basis point rate cuts from here, with a third such move more likely than not. EURESTECBM5X6=ICAP.
A 25 bps cut in June is fully priced.
Germany’s 2-year yield, more sensitive to expectations for ECB policy rates, was down 4 bps to 1.70 percent.
