FX.co ★ Germany 10-Year Bund Yield Dips on Cooling Inflation

Germany's 10-year Bund yield has edged down to 2.86% as investors analyzed the latest European inflation data. Recent regional Consumer Price Index (CPI) statistics indicate a deceleration in inflationary pressures, with North Rhine-Westphalia, Germany's largest state by population, recording a five-month low inflation rate of 1.8% in December. Additionally, French consumer prices increased at a slower pace than anticipated, reinforcing the overarching trend of moderating inflation within the eurozone. In light of these developments, money markets currently assign almost no likelihood of a European Central Bank (ECB) rate hike before December 2026, and only about a 24% chance by March 2027. Despite this slight drop in yields, Bund rates continue to hover near their peaks observed in March, mirroring concerns over heavy government debt issuance, the consequences of German fiscal stimulus, and continual geopolitical uncertainties. It is anticipated that private investors will need to absorb a historic €234 billion in net debt supply by 2026, even after accounting for ECB operations.