What’s going on here?
Euro zone government bond yields dipped on Wednesday, reversing Tuesday’s uptick as investors eagerly anticipate Nvidia’s earnings report.
What does this mean?
Germany’s 10-year bond yield fell by 2.5 basis points to 2.255%, reversing a 3 bp rise from Tuesday, while Italy’s 10-year yield dipped by 2 bps to 3.642% after a 7 bp increase. This pullback comes as markets await Nvidia’s earnings – a key event for the AI-driven stock market rally. Nvidia’s performance could sway market sentiment significantly, especially since a dip in early August shook investor confidence in AI, prompting a shift toward safe-haven government bonds.
Why should I care?
For markets: Keeping a close watch.
Short-term yields stayed relatively stable as investors anticipate more central bank rate cuts, with Germany’s two-year bond yield falling slightly by 1.5 bps to 2.381%. Traders are pricing in about 63 bps of further European Central Bank rate cuts by year-end, suggesting a potentially easing monetary environment.
The bigger picture: Navigating inflation and yields.
European inflation data, expected on Friday, is projected to show a slowdown in price growth to 2.2% year-on-year in August from 2.6% in July. With inflation easing and central banks likely cutting rates, the appeal of government bonds remains high, though a rise in corporate bond supply may temporarily push yields up.
