European Bond Yields Surge Amid Rate Cut Uncertainty
European government bond yields increased, driven by reduced rate cut expectations from the European Central Bank and anticipation of a French credit review. The 10-year German bond yield rose to 2.71%. Investors await the U.S. Federal Reserve's decision, as the yield spread narrows between German and U.S. bonds.
European government bond yields are set to close the week on a high as investor expectations for rate cuts by the European Central Bank diminished. Attention remained on a crucial French credit review post-market close, with Germany's 10-year bond yield marking an increase to 2.71%, reflecting a 5-basis-point rise this week.
The yield on the interest-sensitive 2-year bond peaked at 2.029%, reaching its highest level since April. The majority of its 10-basis-point surge occurred Thursday after the ECB maintained interest rates and provided little direction on future actions. JPMorgan has forecasted an interest rate reduction from the central bank in December, shifting from their earlier October prediction.
The yield disparity between German and U.S. 10-year bonds has narrowed significantly. In contrast, the spread between French and German 10-year yields was 79 basis points, slightly down from this week's peak. This follows expectations of a credit rating review from Fitch for France, which is unlikely to spur major market changes due to prior adjustments for anticipated downgrades.
(With inputs from agencies.)
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