Key insights
- Euro zone bond yields were stable as mixed inflation data and geopolitical developments (Strait of Hormuz, US-Iran ceasefire) were digested. While inflation remains above the ECB's target, market expectations for future rate hikes are moderating. The potential Iran peace deal has lowered oil prices and reduced rate hike expectations, but the immediate impact on US equities is neutral as the focus remains on domestic macro data and Fed policy.
Investing.com -- Euro zone bond yields held steady on Friday as investors evaluated mixed inflation data from major economies in the bloc while awaiting details on a potential agreement to reopen the Strait of Hormuz and extend the U.S.-Iran ceasefire.
Germany’s 10-year bond yield, the benchmark for the euro zone, remained at 2.96%. The yield has declined 7 basis points this month as investors grew more optimistic about a potential Iran peace deal, which has brought oil prices down and reduced expectations for European Central Bank interest rate hikes.
The two-year German bond yield, which is more sensitive to ECB interest rate expectations, was slightly higher at 2.56%. Yields move inversely to prices.
Preliminary data released Friday showed inflation in the euro zone’s four largest economies remained above the ECB’s 2% target for a third consecutive month in May, as rising fuel costs from the war began to affect other prices.
Country-specific data varied. German figures came in cooler than expected, while Spanish and Italian readings were hotter than anticipated. French inflation was below forecasts but increased on a month-over-month basis.
The data had minimal impact on expectations for an ECB rate hike next month, which money markets view as nearly certain. Markets have grown more skeptical about policy tightening later in the year, pricing in a second hike by October but seeing only a small probability of a third move by year-end.
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