The German 10-year bond yield dropped on Tuesday, 5 March 2024, ahead of the European Central Bank’s (ECB) policy announcement. Analysts also noted the tightest spread between the German and Italian 10-year bond yields since February 2022.
German 10-year Bond Yields Down as Europe Braces for ECB Announcement
Germany‘s 10-year bond yield, a European financial benchmark, plunged by three basis points (bps) to 2.365%. On Thursday, 29 February 2024, this yield was 2.513%, the highest it has been since November 2023.
Markets anticipate an unchanged stance on interest rates but hope that ECB president Christine Lagarde may drop hints as to when any cuts may be expected. Many believed market momentums carried over from the end of last year would signal the green light for interest rate cuts. However, clingy inflation in both the US and Europe, coupled with stronger global growth predictions, weakened the chances of interest rate cuts.
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There is a slight possibility the ECB may relax its policy in June 2024. Based on a Reuters report, an April 2024 cut was close to fully priced in. Jussi Hiljanen, the head of rates strategy at SEB, reportedly said:
Given the massive repricing that we’ve recently seen, it would take quite a hawkish rhetoric from the ECB to push markets further in the hawkish direction. I think they will essentially repeat the message from previous meetings that rate hikes are over and that the summer is probably the right time to begin cutting rates.
A barrage of forthcoming data, which includes Britain’s spring budget and the US payrolls, will shine a brighter light on central banks’ policy decisions.
