Euro Zone Bond Yields Climb Before U.S. Election

October 28, 2024

Key points:

• Germany’s 10-year bond yield reaches a three-week high at 2.338%
• Italy’s 10-year bond yield increases to 3.551%, widening its spread with Germany’s bond yield to 120.95 basis points

Euro zone government bond yields climbed to multi-week highs on Monday, following a rise in U.S. Treasury yields as traders anticipate impactful economic data and the approaching U.S. presidential election. 

See: The EU 10-year bond yield shows a slight downward trend at 132.79, with bearish momentum indicated by the MACD on the VT Markets app.

Germany’s 10-year bond yield rose by 5 basis points, reaching 2.338%, its highest in over three weeks.

Similarly, U.S. 10-year Treasury yields increased by 5 basis points to 4.2881%, nearing their late-July peaks, reflecting traders’ growing expectations for a more restrained U.S. Federal Reserve approach amid solid economic indicators. 

Market Sentiment Shifts, Boosting Dollar and Treasury Yields

Market sentiment has also shifted as prospects rise for a Republican-led government, with many viewing a Trump victory and a Republican majority as potential catalysts for inflation, driven by policies such as higher tariffs.

This outlook has lifted the dollar and bolstered U.S. Treasury yields.

Germany’s two-year bond yield, closely tied to euro zone rate expectations, edged up by 3 basis points to 2.173%.

Meanwhile, in Italy, the 10-year bond yield rose by 4.5 basis points to 3.551%, widening the spread between Italian and German yields to 120.95 basis points, signalling growing concerns around Italy’s economic stability relative to Germany.

Markets Await Key Euro Zone and U.S. Economic Reports

As a week filled with critical economic reports unfolds, markets await euro zone third-quarter GDP data and inflation readings, which will culminate with the U.S. jobs report on Friday.

These updates could strongly influence rate decisions on both sides of the Atlantic. 

See also: GBP/USD Steady as Markets Eye UK Inflation Data

Additionally, Friday’s data indicated an uplift in German business morale in October, breaking a four-month decline and offering some optimism for the region’s largest economy, which nudged bond yields higher.

As the week progresses, we expect these economic releases to add further direction to bond markets, with potential yield fluctuations based on the strength or weakness of these key indicators.

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