Eurozone Bonds Inch Up Amid Fiscal Uncertainty and ECB Moves

Eurozone bond yields experienced a modest rise on Wednesday, recovering from a decline the previous day. The increase comes as inflation data cement expectations of a rate cut by the European Central Bank (ECB). Recent figures showed consumer price inflation in the euro area decelerated to 1.9% last month, marking its arrival at the ECB's target after remaining above it since October.

Market analysts anticipate another ECB rate cut on Thursday, following seven previous cuts since June. The market is pricing in about 55 basis points of easing for the year, indicating the likelihood of an additional quarter-point cut later this week. SEB's chief rate strategist, Jussi Hiljanen, suggests a possible pause in July, with further evaluations post-summer when the ECB releases new projections.

Despite worries about fiscal sustainability influencing global markets, Germany's stable financial commitments offer some protection to its bond market against rising borrowing costs. Additionally, Germany's recent tax relief package and the Netherlands' political situation are affecting market dynamics, with investors keenly observing developments.

(With inputs from agencies.)