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A planned summit between U.S. President Donald Trump and Russian President Vladimir Putin was put on hold the previous day, after Moscow rejected a proposed immediate ceasefire in Ukraine. Meanwhile, in the Middle East, U.S. officials increased pressure on Hamas to disarm to underpin a fragile Gaza truce.
German 10-year Bund yields held at 2.55%, while yields on the two-year Schatz were unchanged on the day at 1.911%.
Euro zone government bonds held steady on Wednesday, shrugging off a sharp drop in gold and growing uncertainty on the geopolitical front, while French bonds stuck to their recent range ahead of a ratings review this week.
A huge selloff in gold overnight, in which prices dropped by the most in a day since 2020, briefly injected some volatility into broader markets, but did little to knock other safe-haven assets like bonds.
French bonds held around 3.35%, roughly where they have traded for the last week, since the newly formed government of Prime Minister Sebastien Lecornu appeared to have reached a compromise with leftist lawmakers over his budget plans, thereby averting yet another shakeup.
On Friday, Moody’s reviews France’s credit rating. S&P Global last week delivered a surprise downgrade, warning that political instability is hampering the French government’s ability to get its finances in check. Fitch last month did the same.The European Central Bank meets next week and is not expected to make any changes to monetary policy. ING global head of macro Carsten Brzeski said that since the ECB’s September meeting, data releases had been “sparse and inconclusive” and there was an absence of external factors that might prompt policymakers to cut rates, or signal a cut was imminent.”The most often heard comments simply reiterate the now familiar sentiment that the ECB is in a ‘good place,’ with little urgency to adjust rates,” he said.
He added that while October seemed to be a done deal in terms of no change, traders were underestimating chances of a cut at the December meeting. Markets reflect virtually no chance of any change to borrowing costs in December and little possibility of any move until next March.
The gap between German Bunds and 10-year UK gilts hit its narrowest since March on Wednesday at 183.04 basis points, as yields on British government bonds dropped sharply after data earlier showed inflation ran at a slower rate than expected last month.
The Bank of England is expected to cut rates at least once this year and could deliver another cut in the first half of 2026, based on the derivatives market.
“Traders are betting that the softer inflation print could drive the BOE to cut rates by year-end, as this inflation print gives the BOE more leeway to loosen monetary policy earlier than anticipated,” XTB research director Kathleen Brooks said.
