Euro zone yields touch two-week highs as risk appetite swells

Euro zone bond yields edged up to their highest in two weeks on Monday, as an apparent cooling in trade tensions between the United States and China drew investors away from safe-haven markets and into assets like equities and crypto.

Benchmark German 10-year Bund yields rose 1.8 basis points to 2.643%, nudging at their highest since October 14. Yields have risen for four days in a row, the longest such stretch since early September, as investors have grown increasingly confident that the U.S. and Chinese governments will iron out their disputes over trade and as quarterly earnings paint a picture of fairly robust corporate health.

Friday's delayed release of U.S. consumer price data showed inflation rose by less than expected in September, leaving intact expectations for the Federal Reserve to cut rates by a quarter point this week, but giving stock-market bulls encouragement that price pressures are contained.


This week brings a slew of monetary policy decisions aside from the Fed, including from the central banks of Japan and Canada and the European Central Bank.

The ECB is widely tipped to leave rates unchanged. Markets show traders do not expect any more changes from the ECB for the next year, although ECB officials expressed caution around build-ups of risk in financial markets, as stocks, gold and crypto hover at, or around, record highs.

"Our economists think ECB President Lagarde will again describe policy as "in a good place" and will be watching whether she maintains the net hawkish tone that she struck in July and September," Deutsche Bank strategist Jim Reid said in a note.

Two-year German yields were steady around a two-week high of 1.984%, having staged their biggest daily rise since July on Friday. That was after surveys of business activity showed momentum in the euro zone picked up more than expected in October, while Germany's private sector saw its largest rise in activity in over two years.

Meanwhile, French yields were roughly unchanged on the day, at 3.45% for 10-year paper, after Moody's on Friday left its rating of French debt unchanged, but revised its outlook to "negative" from "stable".

In terms of new government bond supply, Germany, Belgium and Italy will auction new debt this week. Commerzbank estimates supply will account for some 25 billion euros ($29.16 billion), up from around 6 billion last week, which might lift yields.

($1 = 0.8575 euros)