Euro Zone Bonds React as U.S. Inflation Stirs Markets

Euro zone bonds experienced a rise on Friday as markets continued to respond to Thursday's significant U.S. inflation data while anticipating the significant Alaska summit, where U.S. President Donald Trump and Russian President Vladimir Putin are set to meet. German 10-year yields saw an increase of 4 basis points, peaking at 2.7453%, while the German 2-year yields, known for their rate sensitivity, rose by 1 basis point to reach 1.9506%.

On the preceding day, Germany's 10-year yields climbed by 7 basis points due to robust U.S. inflation figures. This trend, as Christian Reicherter, an analyst at DZ Bank, suggests, is largely driven by the U.S.'s Producer Price Index (PPI). The recent PPI data exceeded expectations, renewing inflation concerns and causing traders to reconsider Federal Reserve rate cut predictions. The inflation tracker showed a three-year peak increase in July, signaling a looming inflation surge.

The rise in U.S. Treasury yields mirrored in euro zone markets on Friday. However, trading remains subdued amidst summer's thin activities, with minor gains seen in European stocks and a strengthening euro against a weaker dollar. Italy's 10-year bond yield surged by 5 basis points to 3.56%, narrowing the spread with Germany's 10-year bonds to 70.2 basis points, the narrowest since 2011, according to LSEG data. Market observers await U.S. consumer data and potential developments from the Trump-Putin summit, though major market impacts seem unlikely.

(With inputs from agencies.)