Germany’s 10-year Bund yield traded around 2.91%, hovering near a three-month low, as weak economic data and diminished expectations for further ECB rate hikes weighed on sentiment. The ECB raised interest rates by 25 basis points this month, in line with market expectations. However, ECB President Christine Lagarde stated yesterday that the central bank does not need to respond more forcefully to developments related to the Middle East conflict, emphasizing that inflation is still expected to return to target over the medium term.
Following Lagarde’s remarks, markets scaled back some of their expectations for additional ECB tightening, although investors continue to price in at least one more 25-basis-point increase this year. At the same time, softer economic data reinforced the cautious outlook. Preliminary PMI readings showed that private sector activity in Germany contracted at its fastest pace since 2024, while the broader euro area also remained in contraction territory.
