Euro Zone Bond Yields Edge up to One-Month High

Euro Zone Bond Yields Rise to One-Month High on Rate Speculations

By Harry Robertson

LONDON (Reuters) - Euro zone bond yields ticked up to their highest level in around a month on Monday before dipping slightly as investors continued to try to gauge the outlook for central bank rate cuts in 2025.

The Federal Reserve last week put upward pressure on U.S. government bond yields, which set the tone for other markets around the world, when policymakers said they now expect to cut rates twice in 2025, down from a previous estimate of four cuts.

Germany's 10-year bond yield, the benchmark for the euro zone, rose to 2.32% on Monday, around the highest level since Nov. 22. It was last up 1.6 basis points (bps) at 2.302%. Yields move inversely to prices.

Trading volumes were lower due to traders being off over the holiday season, potentially accentuating price moves.

European Central Bank (ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB) President Christine Lagarde said the euro zone was getting "very close" to reaching the central bank's medium-term inflation goal, according to an interview published by the Financial Times on Monday.

The ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB cut rates for a fourth time to 3% this month but euro zone bond yields rose after Lagarde struck a slightly tougher tone than expected, saying the fight against inflation was not over.

Lagarde told the FT that although headline inflation was at 2.2%, services inflation remained at 3.9% and "is not budging much".

Irish central bank chief Gabriel Makhlouf also warned that elements of services inflation in the euro zone were concerning, the paper said.

Germany's two-year bond yield, which is sensitive to ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB rate expectations, was last flat at 2.041%.

Italy's 10-year yield was higher by 2 bps at 3.469%, and the gap between Italian and German yields stood at 117 bps.

Investors face an uncertain 2025, with U.S. President-elect Donald Trump's policies a wild card.

Money market pricing on Monday showed investors expect around 115 bps of rate cuts from the ECB-POLICY-RATES-82f6314e-6203-420b-bc8b-70a978546822>ECB next year, little changed from Friday.

(Reporting by Harry Robertson; Editing by Kevin Liffey and Ed Osmond)