In Frankfurt am Main in western Germany, a man held an umbrella to protect himself from the rain and walked past the euro sign in front of the former European Central Bank (ECB) building.
Kirill Kudryavtsev | Kirill Kudryavtsev AFP | Getty Images
Euro zone government bond yields extended gains on Thursday afternoon, shortly after the European Central Bank announced its first interest rate cut in five years.
At 3:12 pm London time, the yield on German 10-year government bonds, considered the benchmark for the euro zone, rose 6 basis points to 2.557%. The country’s 2-year government bond yield rose 4 basis points to 3.025%.
Italy’s 10-year government bond yield rose 7 basis points to 3.88%, and Spain’s 10-year government bond yield rose 6 basis points to 3.29%.
Although the European Central Bank announced its first interest rate since 2019, market observers were quick to express uncertainty about what would happen next.
“The Governing Council emphasized a data-dependent, meeting-by-meeting approach, reducing the likelihood of back-to-back rate cuts in July due to insufficient European data before the next meeting. This decision could be termed a ‘hawkish rate cut'” , Gaël Fichan, head of fixed income at Bank Syz, said in a report.
Domestically, Treasuries were higher as investors monitored a rise in weekly jobless claims (which could support a rate cut by the Fed) 10-year term It rose slightly to 4.299%.
Analysts said the divergence in interest rates could drive trends in stocks, currencies and bonds in the coming months.
“The euro area economy is different from that of the United States, which has been affected by rising inflation and loose fiscal policy. The cost of living crisis has had a greater impact on real household incomes in Europe, while in the United States domestic demand is strong,” said KPMG Chief Economist Ye Selfin said in a report.
“Additionally, the Fed’s policy tightening could further tighten global financial conditions, including by raising long-dated European bond yields, which could lead to larger policy offsets at the short end of the curve.”
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