Euro Zone Bonds Soften Amid Anticipation of U.S. Inflation Data

Euro zone government bond yields retreated on Wednesday as investors awaited crucial U.S. inflation data, which could influence the Federal Reserve's rate cut decision next week. French bond yields remained stable following President Emmanuel Macron's appointment of loyalist Sebastien Lecornu as the new prime minister.

U.S. producer price inflation data expected on Wednesday, alongside a consumer price inflation report on Thursday, are set to provide clarity on the impact of U.S. tariffs. A recent disappointing jobs report has solidified expectations for a Federal Reserve rate cut at their upcoming September 16-17 policy meeting, with money markets showing a 93% probability of a 0.25% cut.

German 10-year bond yields, considered the euro zone benchmark, declined by 1.7 basis points to 2.64%. Joshua Mahony, Chief Market Analyst at Scope Markets, warned that a spike in inflation figures could temper hopes for aggressive Fed easing. Lecornu's appointment hints at Macron's perseverance in pursuing his pro-business reform agenda in France, maintaining steady French bond yields.