Euro Zone Bond Yields Edge Higher Amid Economic Shifts

Euro zone government bond yields nudged higher on Thursday, tracing movements in U.S. Treasuries following optimistic U.S. economic data. This comes as volatility in interest rates continues to diminish, with the European Central Bank anticipated to uphold its current stance through the end of 2026.

Germany's 10-year yield, the euro zone's benchmark, experienced a 2.5-basis-point increase to 2.764%, rebounding from earlier declines. Similarly, the 10-year U.S. Treasury yield surged almost 5 basis points to 4.1950%, marking its peak over three weeks, driven by revised second-quarter U.S. economic growth data, leading traders to reconsider Federal Reserve rate cut expectations.

Investor expectations for the European Central Bank's interest rate stability have strengthened, with money markets assigning less than a 35% probability to a 25 basis point rate cut by June. Meanwhile, German economic frailties contributed to a dip in business confidence, casting doubt on fiscal policies' ability to revitalize the economy.

(With inputs from agencies.)