Euro zone bond yields slightly lower; inflation, rate outlook in focus

Euro zone bond yields experienced a slight dip on Wednesday, as markets stabilised following a period of significant fluctuations, according to wire material. The focus was on the upcoming US inflation data that would provide insights into potential interest rate adjustments by the Federal Reserve. Economists anticipate that September's headline inflation would rise to 3.6% annually, primarily due to the resurgence in energy prices.

Germany's 10-year bond yield, serving as the euro zone's benchmark, saw a decrease of less than a basis point, settling at 3.4589%. Despite the stabilisation, market participants remained cautious due to the global sell-off late in September and early October. Anxiousness arose from concerns over rising energy prices, interest rates, and inflation, which had pushed yields upward. Additionally, fiscal worries further distressed countries with higher levels of debt.

Germany's 2-year bond yield, which is more sensitive to interest rate expectations, dropped almost 2 basis points to 3.1036%. During a CNN event in Bangkok, European Central Bank President Christine Lagarde attributed the high inflation rate in the euro zone to a surge in energy prices resulting from the US-Israeli war on Iran. While there were no signs of second-round effects on other prices, the ECB would be searching for cues, like wage negotiations demands by trade unions.

The ECB had increased interest rates twice this year, with each hike amounting to 25 basis points, and money markets were close to fully pricing in another rate hike before the December meeting.