Germany's 10-year Bund yield experienced a slight decline to 2.87% as investors digested indications of slowing inflation within the eurozone. In January, the Consumer Price Index (CPI) eased to 1.7%, significantly below the European Central Bank's (ECB) target. Additionally, core inflation unexpectedly dropped to 2.2%, reaching its lowest point since October 2021. These developments have sparked concerns among policymakers regarding the rapid appreciation of the euro and the potential for resuming rate cuts that were paused in June.
The ECB is scheduled to announce its monetary policy decision on Thursday, with expectations leaning towards maintaining interest rates unchanged for the fifth consecutive meeting. Officials are likely to evaluate the deflationary effects of a stronger euro. ECB President Christine Lagarde is anticipated to reaffirm that the current policy stance is favorable, with market projections suggesting stable rates through 2026. Despite the recent dip in yields, Bund yields remain close to the March 2025 peak, which was just over 2.9%. This is supported by a significant increase in debt issuance, as Germany plans to raise a record €512 billion this year to invest in infrastructure projects and bolster defense spending.
