Euro zone bond yields rise to almost three-week high after bloc GDP data

Euro zone bond yields rose on Thursday after data showed that the bloc's economy grew more than expected in the third quarter, giving traders even more conviction that the European Central Bank will leave rates unchanged. Data showed on Thursday that the

bloc expanded by 0.2% in the third quarter, quicker than expected as buoyant consumption offset faltering exports and persistent struggles in Germany's oversized industrial sector.

In the meantime, the European Central Bank is all but certain to leave interest rates unchanged for a third meeting in a row on Thursday, enjoying a rare period of low inflation and steady growth even in the face of turbulence caused by shifting trade relations. German 10-year bond yield, the benchmark for the euro zone bloc, rose to its highest since October 10, last up 3.9 basis points to 2.66%.

Italy's 10-year yield was higher by 4 bps at 3.42%. Germany's two-year bond yield, which is more sensitive to European Central Bank rate expectations, rose to a three-week high, last up 3 bps at 2%.

"Recent euro zone activity data has been positive, including October’s flash PMIs and this morning’s first estimate of third quarter GDP," said Natasha May, Global Market Analyst at J.P. Morgan Asset Management. "Given this, and forecasts for inflation to moderate, (ECB) President Lagarde’s mantra that ECB policy is in a ‘good place’ seems a sensible one," she added.

FED, US-CHINA RELATIONS Meanwhile, Federal Reserve Chair Jerome Powell tempered expectations for a December rate cut, with traders also weighing an agreement after trade talks between U.S. President Donald Trump and Chinese President Xi Jinping.

The U.S. central bank cut interest rates by a quarter of a percentage point for the second time this year on Wednesday, as was widely expected, with the benchmark overnight rate down to a target range of 3.75%–4.00%. What caught markets off guard, however, was Powell saying Fed officials had struggled to reach a consensus on the future trajectory of monetary policy, and that further easing in December was not a foregone conclusion.

Kansas City Fed President Jeffrey Schmid favoured no cut at all given ongoing inflation, while Fed Governor Stephen Miran called for a 50-basis-point (bps) rate reduction. Meanwhile, Trump said on Thursday he had agreed with Xi to trim tariffs on China in exchange for Beijing cracking down on the illicit fentanyl trade, resuming U.S. soybean purchases and keeping rare earths exports flowing.