Germany’s 10-year Bund yield declined toward 3.3%, its lowest level since late August, after the European Central Bank kept interest rates unchanged. Market sentiment was additionally weighed down by reports of ECB President Christine Lagarde’s potential early departure, as well as persistent concerns about elevated energy prices and France’s deteriorating fiscal outlook.
The ECB reaffirmed its wait-and-see approach after having raised rates twice since the outbreak of the Iran war, which disrupted energy markets. Policymakers cautioned that inflation could rise to nearly double the 2% target, but noted that there is still no clear evidence that higher oil and gas prices are feeding through more broadly into consumer prices.
The central bank offered limited guidance on the path of future rate moves, emphasizing that tighter financial conditions should help restrain inflation. In response, markets modestly dialed back expectations for additional tightening, now pricing in about 70 basis points of cumulative rate hikes by the end of 2027, compared with around 72 basis points previously.
