On Wednesday, May 15, Germany’s 10-year bond yield fell below the key 2.5% threshold, preceding the release of crucial US consumer price index (CPI) data that could potentially determine the direction and magnitude of the Federal Reserve’s interest rate cuts for this year. At the time of writing, Germany’s 10-year yield stood at 2.49%, representing a decrease of 5 basis points compared to the previous day’s figure. This development occurred against the background of a potential impact of the US CPI figures on the Federal Reserve’s future actions regarding interest rate cuts. As per industry experts, the upcoming CPI data may reveal a significant increase, causing market participants to revise their expectations concerning interest rate cuts by the Federal Reserve this year.
Previously, on May 14, Germany’s bond yields witnessed minimal fluctuations, despite heightened anticipation surrounding the US CPI figures scheduled for the following day. According to reports, the German 10-year yield rose marginally to 2.514%, reaching its highest point since May 2 before declining to finish the day at 2.52%.
On May 13, two-year bond yields in Germany saw a slight decrease, with the yield standing at 2.98%. This figure represented a minor decrease compared to the May 12 figure, which stood at 2.993%. The two-year bond yield in Germany is more susceptible to shifts in expectations regarding European Central Bank (ECB) rate adjustments.
On May 7, Germany’s 10-year bond yield dropped by 4 basis points, reaching 2.438%. The yield had previously fallen to its lowest level since April 18, reaching 2.431%. This decline can be attributed to market participants increasing their bets on both the Federal Reserve and the ECB implementing rate cuts during the current year.
As per reports, on May 10, Germany’s 10-year bond yield experienced a marginal decline, decreasing by 2.5 basis points to 2.518%. Prior to this, the yield had fallen by as much as 10 basis points. The Bank of England’s policy decision and US job data from Thursday did not significantly alter market projections relating to the central bank’s easing cycle.
On May 3, Germany’s 10-year bond yield declined by 10 basis points, reaching 2.456%. The yield had previously risen to 2.534% shortly before the release of the US employment figures. Industry experts observed that the US employment figures did not have a substantial bearing on market predictions regarding the Federal Reserve’s future actions.
According to reports, on May 8, Germany’s 10-year bond yield increased by 4 basis points, reaching 2.46%. This development followed a dip in bond yields, which came close to signaling the end of the current trend in bond yields, according to Jefferies’ Chief European Economist, Mohit Kumar.
Germany’s 10-year bond yield’s performance relative to those of other countries has also attracted attention. As reported by Reuters on May 15, the spread between US 10-year Treasuries and German Bunds was currently 193 basis points, having widened to approximately 220 basis points in mid-April. Moreover, Italy’s 10-year yield declined by 7 basis points to 3.81% on Wednesday, May 15. The difference between Italian and German Bunds has also widened to 132 basis points.
Experts predict that the ECB is likely to make earlier rate cuts than the Federal Reserve in 2024. However, many doubt that there will be a prolonged period of more relaxed ECB policies while the Federal Reserve maintains rates at higher levels for an extended period. According to RBC Capital Market’s Global Macro Strategist, Peter Schaffrik, “we have never been believers in the divergent story.”
In conclusion, Germany’s 10-year bond yield has declined ahead of crucial US CPI data that could potentially influence the Federal Reserve’s future interest rate cut decisions. As the US CPI figures loom closer, market participants await developments that could clarify the prospective direction and magnitude of interest rate cuts by the Federal Reserve this year.
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