Euro Zone Inflation Eases: Bond Yields React

Euro zone government bond yields edged lower on Wednesday following data that showed easing inflationary pressures across the bloc in January. The figures are not expected to shift the European Central Bank's (ECB) stance on interest rates, which are likely to remain unchanged this week.

Germany's 10-year Bund yield, a key benchmark for euro zone debt, fell by nearly 2 basis points to 2.871%. This decline comes after a rise of almost 7 basis points over the prior three days. Long-dated bond prices firmed slightly, with the 30-year yield down 1.5 basis points, close to a peak seen earlier this week.

Headline inflation in the euro zone decreased to its lowest since September 2024, aligning with forecasts at 1.7% in January. Core inflation, which excludes volatile items, dropped unexpectedly to 2.2%. Analysts, including Nordea's Anders Svendsen, noted the ECB’s satisfaction with core inflation control, suggesting they will maintain the deposit rate at 2%, emphasizing stability ahead of Thursday's policy announcement.