LONDON, May 27 (Reuters) – Euro zone government bond yields dipped on Tuesday, ahead of a raft of regional inflation readings this week and as investors digested the latest reversal in U.S. tariff policy towards the European Union.
The yield on 10-year German Bunds, which serve as a benchmark for the wider euro zone market, was down 1.1 basis point at 2.55% while that on 30-year debt eased 1.7 bps to 3.062%, although the drops lagged the declines seen in long-dated Japanese and U.S. bond yields.
With inflation numbers on both sides of the Atlantic due this week, there could be room for another price rally, according to Commerzbank head of rates Christoph Rieger.
“Further bullish hopes are pinned on this week’s inflation figures, but the first leads from France today may not fulfil these expectations,” Rieger said.
“In contrast to the pending German and euro zone numbers, our economists expect a small increase in the headline rate, which could be above consensus. With lower German numbers still expected by the end of the week, which could take the headline rate back to 2%, we suggest buying into potential dips at 10y Bund yields around 2.6%,” he said.
Yields on the two-year Schatz were fairly flat on the day at 1.794%. Last week, two-year yields touched their lowest in nearly a month, as investors showed a preference for non-U.S. debt, given the unpredictability of U.S. tariff policies and the growing concern over the long-term finances of the U.S. government.
Two-year yields are typically more reactive to shifts in expectations for European Central Bank monetary policy, yet much of the focus lately has been on trade uncertainty and government finances.
Elsewhere, yields on 10-year Italian, French and Spanish bonds edged lower by around 1-2 bps, reflecting a relative sense of stability to trading on Tuesday. (Reporting by Amanda Cooper and Dhara Ranasinghe; Editing by Kirsten Donovan)
