Dec 9 – German government bond yields fell on Monday, after recording their first weekly rise in more than a month on Friday, as investor focus shifted to U.S. data and a European Central Bank policy meeting later this week.
Euro area borrowing costs fell recently as economic figures showed a bleak outlook and market inflation expectations dropped below 2%.
Germany’s 10-year yield, the euro area’s benchmark, fell 2.5 basis points to 2.09%, after rising 6 bps last week.
Money markets priced in an ECB deposit facility rate at 1.85% in July from the current 3.25%, while fully pricing a 25 bps rate cut next week and less than a 10% chance of a 50 bps move.
The gap between French and German yields – a gauge of the risk premium investors demand to hold French debt – rose one bp to 77.50 bps as investors tracked political developments after the fall of Prime Minister Michel Barnier’s government.
It hit 72.40 bps on Friday, its lowest since Nov. 21, as hopes grew that France may end up with a 2025 budget approved by parliament, while the prospect of European Union joint funding fuelled broader convergence among bond yields.
Italy’s 10-year government bond yields – the benchmark for the euro area periphery – fell 2.5 bps to 3.18%. The BTP yield spread briefly hit a fresh 37-month low at 104.50 bps and was last at 108 bps.
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