Bund Yield Little-Changed Ahead of ECB Meeting

Germany’s 10-year Bund yield stabilized around 3.35% as investors assessed stronger-than-expected US employment data while positioning ahead of next week’s European Central Bank policy meeting. US nonfarm payrolls rose by 162,000 in August, significantly exceeding market expectations for a 56,000 increase and prompting markets to price in a near 60% probability of a Federal Reserve rate hike this month. In Europe, money markets continue to fully price in a 25-basis-point ECB rate hike to 2.5% next week, while assigning an almost 100% probability that the deposit rate will reach 3% by June 2027. This pricing implies two additional rate increases by mid-2027, keeping upward pressure on European borrowing costs. On the economic data front, Germany’s factory orders increased 2.5% in July, slowing from an upwardly revised 3.7% rise in June but comfortably exceeding market expectations for a 0.3% gain.

Germany’s 10-year Bund yield edged higher to 3.36% on Friday after falling in the previous session, as investors awaited fresh direction from US employment data due later in the day, while attention gradually shifted towards the European Central Bank’s September 10 meeting. The global bond market found some relief on Thursday after Federal Reserve Governor Christopher Waller eased expectations of a near-term Fed rate hike, sending the dollar lower, while the recent rally in oil prices also lost some momentum. Bond yields, nevertheless, remain elevated amid persistent concerns over energy-driven inflation, higher interest rates and fiscal sustainability in countries including France and the UK. Money markets continue to fully price in a 25-basis-point ECB rate hike to 2.5% next week. Markets are also pricing in an almost 100% probability of the deposit rate reaching 3% by June 2027, implying two further rate increases by mid-2027.

Eurozone government bonds snapped a six-day losing streak on Thursday, pushing yields down from multi-year highs as easing energy prices helped alleviate inflation concerns and led markets to marginally scale back expectations for European Central Bank rate hikes. Germany’s 10-year Bund yield eased to 3.36%, just below Wednesday’s 15-year high of 3.3951%, as Brent crude retreated from six-week highs and natural gas prices fell from their highest level since January 2023. The declines came after US President Donald Trump said the renewed US military campaign in Iran would not last long. Bond yields nevertheless remain elevated amid concerns over energy-driven inflation, higher interest rates and fiscal sustainability in countries including France and the UK. Money markets continue to fully price in a 25-basis-point ECB rate hike to 2.5% next week. Markets are also pricing in an almost 100% probability of a 3% deposit rate by June 2027, implying two further rate increases by mid-2027.