Eurozone Bond Yields Ease as Markets Await U.S. Inflation Data

what happened

Eurozone government bond yields moved lower in early Monday trading, while U.S. Treasurys were shut for Columbus Day. Dow Jones Newswires reported that yields in both markets nevertheless remained elevated, supported by solid U.S. economic growth, resilience in the eurozone and inflationary pressure from energy prices.

Investors continued to monitor France’s fiscal difficulties. The government’s budget plans target a deficit of 5% of gross domestic product in 2027, but a divided parliament may make it difficult to secure approval for substantial spending cuts, particularly ahead of next year’s presidential election. Parliament is due to begin debating the revenue side of the budget this week.

The 10-year German Bund yield declined 2.6 basis points to 3.463%, while the 10-year French OAT yield fell 1.5 basis points to 4.847%, according to Tradeweb. The main focus is Wednesday’s U.S. consumer-price report for September. Analysts polled by The Wall Street Journal expect headline inflation to increase to 3.7% from 3.4% previously.

The figures will be watched ahead of the Federal Reserve’s next rate decision on Oct. 28. The Fed raised rates by 25 basis points in September, while markets currently assign an 18% probability to another increase this month and price in three hikes over a 12-month period, according to LSEG. Morgan Stanley strategists see value in U.S. Treasury duration but prefer to wait until after the Oct. 28 decision and the Nov. 3 midterm elections.

why it matters

Elevated yields may attract long-term bond investors, but U.S. inflation and uncertainty over France’s budget keep attention focused on interest-rate expectations and sovereign debt risks.

instruments