Eurozone government bond yields remained near multi-year highs on Wednesday as investors awaited the Federal Reserve’s monetary policy announcement, with markets pricing in a 25-basis-point US interest rate increase.
Germany’s two-year Schatz yield stood at 3.25%, close to its highest level in three years. The benchmark 10-year Bund yield was around 3.544%, its highest level since 2011.
Longer-dated German bonds recovered some ground following several sessions of selling. The 30-year yield eased to approximately 3.897%, retreating from a 15-year high.
France’s 30-year government bond yield also declined from its highest level since 2002.
Markets Price in a 92% Probability of a Fed Rate Increase
Market pricing indicated an approximately 92% probability that the Federal Open Market Committee would raise interest rates by 25 basis points at its meeting on Wednesday.
Such a move would represent the Federal Reserve’s first rate increase since mid-2023.
Investors are awaiting Federal Reserve Chair Kevin Warsh’s post-meeting press conference for indications of whether the expected increase would be a single adjustment in response to inflation risks or the beginning of a broader tightening cycle.
The anticipated decision follows the European Central Bank’s rate increase last week, which brought its deposit facility rate to 2.50%.
Energy Prices Remain a Factor in Interest Rate Expectations
Higher energy prices continued to influence inflation expectations and government bond markets.
Brent crude remained above $113 a barrel following reported strikes on Saudi pipeline infrastructure and shipping disruptions in the Red Sea.
The increase in oil prices has contributed to concerns about the potential impact of energy costs on businesses and consumers.
Money market pricing indicated expectations of another 25-basis-point increase in ECB interest rates before the end of the year.
Investors were also anticipating further monetary policy tightening from the Bank of Japan on Friday.
The movements in European bond yields reflected expectations for central bank policy against a backdrop of higher energy prices, with shorter-term German yields remaining near multi-year highs despite some declines in longer-dated yields.
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