Eurozone Bond Yields Fall Again as Investors Bet on Fed Rate Cuts
Eurozone government bond yields declined on Tuesday, following a similar move in U.S. Treasuries and continuing last week’s downward trend. The drop came as markets reacted to U.S. credit concerns and growing expectations of further Federal Reserve rate cuts.
Germany’s 10-year bond yield fell by 3 basis points to 2.55%, edging closer to Friday’s four-month low of 2.52%. Investors continued to seek safe-haven assets amid uncertainty surrounding the U.S. government shutdown, ongoing trade tensions with China, and rising signs of U.S. credit stress.
Similarly, the 10-year U.S. Treasury yield dropped about 3 basis points to 3.96%, nearing last week’s 3.93% level.
Analysts at ING noted that “looking for lower market rates” best summarizes the broader sentiment, adding that European yields are currently more influenced by global factors than by domestic political risks.
Markets Await U.S. Inflation Data and Fed Decision
Global bond investors are now focused on the upcoming U.S. inflation report, the only key economic data expected this week during the prolonged U.S. government shutdown.
Attention then shifts to the Federal Reserve meeting next week, where markets widely expect a 25-basis-point rate cut, followed by another reduction in December.
ECB Holds Steady as Eurozone Conditions Remain Stable
In the eurozone, inflation remains close to target and growth relatively resilient. ECB President Christine Lagarde recently said the central bank is in a “good place,” indicating no need for immediate policy changes.
Futures markets now suggest the European Central Bank will keep rates unchanged for the rest of the year, with about an 80% probability of a small rate cut by 2026.
Analysts such as Rene Albrecht of DZ Bank expect Germany’s fiscal expansion to lift growth and add mild price pressure in the second half of 2026.
Germany’s two-year yield, which often reflects interest rate expectations, was steady at 1.91%.
France Downgraded Amid Fiscal Concerns
Lingering worries about fiscal sustainability in major economies — including the U.S., Japan, and France — also weighed on sentiment.
S&P unexpectedly downgraded France’s sovereign rating to ‘A+/A-1’ from ‘AA-/A-1+’ on Friday, warning that political instability could undermine fiscal reform efforts.
France’s 10-year bond yield slipped 2 basis points to 3.34%, keeping the spread over Germany’s benchmark yield stable around 79 basis points.
