Eurozone bond yields steadied on Tuesday after July's sharpest monthly sell-off since March, with the German 10-year Bund holding near multi-week highs. Resilient growth and sticky inflation have pushed traders to price in another ECB rate hike next month, even as fresh economic data looms later this week.
Eurozone government bond yields held in a narrow range on Tuesday, with benchmark borrowing costs stabilizing after a volatile end to July and ahead of a fresh batch of economic data due later this week. The German 10-year Bund yield stayed flat at 3.15%, holding near multi-week highs. The two-year German yield edged higher to 2.77%, reflecting sustained caution among traders over near-term monetary policy.
The pause follows a rough month for eurozone debt. Throughout July, European sovereign bonds suffered their largest monthly sell-off since March, with 10-year German yields surging roughly 30 basis points to approach 15-year highs.
Fixed-income investors spent the final days of July weighing geopolitical friction, volatile energy markets, and sticky inflation. Eurozone second-quarter GDP expanded by a surprisingly resilient 0.4%. Preliminary data showed headline inflation ticking up to 2.9% in July, with core and services inflation staying elevated.
That combination of resilient growth and persistent price pressure sharply boosted market expectations for further European Central Bank tightening. Traders are now pricing in another 25-basis-point rate hike at the ECB's Sept. 10 meeting, and some are weighing a second move by early 2027.
A dip in crude oil prices — triggered by news of upcoming U.S.-Iran diplomatic talks — offered bond holders brief relief on Monday, but underlying yield floors have remained firm.
Trading desks are now looking ahead to final eurozone composite and services PMI figures on Wednesday, followed by retail sales data on Thursday. Bond traders will use those prints to gauge whether consumer demand and business activity are cooling enough to soften the ECB's hawkish stance.
Source: Investing.com
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