Euro Zone bond yields dip ahead of key US inflation data

Euro Zone bond yields: Euro zone bond yields experienced a slight decline on Friday ahead of the highly anticipated US inflation data, yet remained poised for a second consecutive week of increases. Traders grappled with uncertainties surrounding the timing and pace of rate cuts by global central banks.

The German 10-year bond yield, serving as the benchmark for the euro zone, dropped 1.9 basis points to 2.61 per cent. However, it is still on track for a weekly rise of 10 basis points. Earlier in the session, the euro zone benchmark touched a five-month high of 2.32 per cent.

Market participants eagerly awaited the latest reading of US core personal consumption expenditures, a key inflation metric preferred by the Federal Reserve. The outcome, due at 1230 GMT, could prompt further adjustments in market expectations regarding the timing of potential interest rate cuts by the central bank.

Such adjustments will reverberate across other policy-making institutions, including the European Central Bank (ECB), and influence rate markets globally.

Italy's 10-year yield recorded a decline of 4.3 basis points, settling at 3.94 per cent. Consequently, the spread between Italian and German Bunds narrowed by 2.2 basis points to 132 basis points.

Meanwhile, Germany's two-year bond yield, which tends to be more sensitive to ECB rate expectations, remained relatively unchanged at 3 per cent.

Market participants will closely monitor the implications of the inflation data on global central bank policies, anticipating potential shifts in interest rate trajectories and their subsequent impact on bond markets worldwide.

(with Reuters inputs)