Os zone government bond prices do euro rose for the fifth consecutive day this Tuesday, recording the biggest increase since February.
The increase takes place in a scenario of cooling inflation expectations and
The price of oil fell below $80 per barrela drop of 10% since Monday, after the a peace agreement to be signed in Geneva on Friday.
As a result, the bond yields – which move inversely to prices – plummeted and stocks soared, along with market-sensitive assets. interest rateslike gold.
German benchmark 10-year bond yields fell 1.6 basis points to 2.9242%, as prices rose by the highest rate since mid-February, ahead of the
Yields are still nearly 30 basis points above their late February level, but have fallen sharply from last month’s 15-year highs of close to 3.2%.
Two-year bond yieldswhich tend to react more to changes in inflation expectations and interest rates, retreated more slowly.
Two-Year Schatz Bond Yields — which on Wednesday was down 1.3 bps, at 2.5715% — is more than 55 bps above the level recorded on the eve of the war, on February 27.
Another increase in the ECB’s interest rate
Investors expect another European later this year, after the increase of 0.25 percentage points last Thursday. A week ago, the total of three increases predicted for 2026 was considered excessive by most market analysts.
The ECB’s chief economist, Philip Lane, said in an interview at the Reuters NEXT conference Europe in London, on Tuesday, that the central bank would remain “proactive” in its fight against high inflation.
The strategist of Deutsche BankJim Reid, noted the ECB’s ongoing concerns.
“Therefore, even with the, markets are still fully pricing in a second interest rate hike from the ECB before the end of the year, following last week’s move,” he said.
Inflation in the euro zone rose 0.1% in May compared to the previous month, in line with expectations, according to data released by Eurostat this Tuesday. Annual inflation remained stable at 3.2%, in line with the Reuters forecast.
Underlying inflation, which excludes energy, food, alcohol and tobacco, came in at 2.6% year-on-year, slightly above forecasts of 2.5%.
“Despite the ECB’s change in stance last week, which adopted a more aggressive stance, government bonds have appreciated and yields have fallen as lower oil prices ease inflation expectations and soften the future outlook for the ECB,” said Ipek Ozkardeskaya, senior market analyst at Swissquote Bank.
“If it ends and energy prices fall sustainably, the ECB could rule out another interest rate increase and, depending on the reaction of the zone’s economies do euro may even be led to reverse the last measure”, she added.
If oil prices remain low for an extended period, it is likely that interest rates will also remain low — a favorable dynamic for bonds, Ozkardeskaya said.
Italian 10-year bond yields fell 1.3 basis points on the day to 3.6377%, keeping their premium over German bond yields (Bunds) just below 70 basis points.
