Euro zone government bond yields moved higher across maturities on Thursday as investors assessed stronger business activity data from Europe and the United States and the implications for monetary policy.
Germany’s 10-year Bund yield, a benchmark for euro zone government debt, rose to 3.549%.
The move followed an increase on Wednesday, when the 10-year yield recorded its largest one-day rise in more than two months.
At the shorter end of the yield curve, Germany’s two-year Schatz yield increased to 3.303%, its highest level since September 2023. The yield had recorded its largest daily increase in almost two weeks during the previous session.
Euro Zone Business Activity Accelerates
Flash Purchasing Managers’ Index data indicated that euro zone business activity expanded at its fastest pace in more than three years.
The figures were stronger than economists had expected and contributed to changes in market expectations for the future path of interest rates.
Separate survey data from the United States also indicated continued activity in the services and manufacturing sectors.
Following the releases, money markets reduced expectations for near-term interest rate cuts.
Markets Reassess ECB Interest Rate Outlook
The economic data also contributed to increased market expectations that the European Central Bank could maintain restrictive monetary policy for longer or consider further increases in interest rates.
Market participants are assessing the potential effect of energy-related input costs on underlying inflation and the implications for future ECB decisions.
These expectations reflect market pricing rather than confirmed future policy decisions by the ECB.
U.S. Treasury Yields Add to European Bond Pressure
European bond-market moves coincided with higher yields in the United States, where investors were also reassessing the outlook for Federal Reserve policy.
According to the supplied futures-market data, markets were pricing an approximately 70% probability of a Federal Reserve rate increase in October.
This represents market-implied pricing and does not establish that the Federal Reserve will raise rates at that meeting.
French Government Bonds Remain in Focus
French government debt also remained under scrutiny as investors monitored the country’s budget discussions and debt-to-GDP projections.
The cost of insuring French sovereign debt through credit default swaps remained near multi-year highs, according to the supplied data.
The yield spread between French 10-year OATs and German Bunds remained elevated, reflecting different market pricing for the two countries’ government debt.
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