Euro zone bond yields rise after German inflation data

Euro zone government bond yields edged higher on Monday after German inflation data led investors to slightly scale back their bets on future European Central Bank monetary easing moves.

Germany's 10-year bond yield, the benchmark for the euro zone bloc, rose 2 basis points (bps) to 2.16 per cent; it was down 0.5 bps before the German figures.

Inflation eased across a raft of key German states in September, preliminary data showed on Monday, suggesting that the national inflation rate would also decrease further.

Markets priced in a 50 bps of rate cuts by the European Central Bank by year-end from around 53 bps before data.

Data showed on Friday that French and Spanish consumer prices rose less than anticipated in September, leading investors to increase their bets on future ECB rate cuts. Figures from the euro area are due on Tuesday.

Germany's two-year bond yield, which is sensitive to ECB rate expectations, was up 2 bps at 2.3 per cent. Earlier in the session it hit 2.046 per cent, its lowest level since December, 2022.

The gap between Austrian and German 10-year yields - a gauge of the risk premium investors demand to hold Austria's government bonds – was roughly unchanged at 49.5 bps, after the far-right won the parliamentary elections.

The Eurosceptic, Russia-friendly Freedom Party (FPO) gained 28.8 per cent of the vote, but Leaders of Austrian political parties united to reject the idea of forming a coalition with FPO.

Italy's 10-year yield rose 3.5 bps to 3.49 per cent, and the gap between Italian and German yields widened to 132 bps.