Euro Zone Bond Yields Steady Amid Trade Truce and US Inflation Anticipation

Euro zone government bond yields remained steady on Tuesday, responding to the extension of a trade truce between the United States and China for 90 days. Market participants focus on upcoming U.S. inflation data, which could sway forecasts for an imminent Federal Reserve rate cut.

The 10-year German yields hovered around 2.6977%, while two-year yields showed little movement at 1.9706%. U.S. consumer price inflation, anticipated to have accelerated moderately in July, likely rose due to the increased cost of imports like furniture and apparel, contributing to a spike in underlying inflation — the highest in six months.

Investment analysts now anticipate a Federal Reserve rate cut, potentially as early as September. However, the European Central Bank is not expected to lower borrowing costs soon. The yield spread between U.S. Treasuries and 10-year Bunds has narrowed significantly this month, indicating shifting market dynamics.

(With inputs from agencies.)