Eurozone Bonds React to Fed's Hawkish Signal

Eurozone government bond yields are poised for a second consecutive week of increases following hawkish signals from the Federal Reserve, coupled with a routine European Central Bank meeting. The ECB held its interest rates at 2%, asserting that monetary policy is in a 'good place' as economic risks lessen and the euro area demonstrates resilience amid lingering uncertainties.

Borrowing expenses in the eurozone climbed last Friday after robust purchasing managers' index readings surpassed expectations. Germany’s 10-year Bund yields, the euro area's benchmark, recorded a one basis point increase to 2.65% and are anticipated to rise by 2 basis points for the week, following a 4.5 basis point jump the prior week.

Market speculation regarding future ECB rate cuts decreased on Thursday after the Federal Reserve meeting, stabilizing after the ECB's policy statement and remarks from President Christine Lagarde. Current odds for a 25-basis-point rate reduction by September fell to 45%, from 70% the previous Friday. Meanwhile, tensions from the U.S.-China trade negotiations contributed to an earlier decline in Bund yields this month, as reduced stakes in an ECB rate cut emerged.