Eurozone Bond Yields Decline Ahead of Key Economic Data and ECB Meeting

Eurozone sovereign bond yields declined sharply in early trading, with Germany’s 10-year bund yield dropping to 2.14%, down 8 basis points from Friday’s close. Italy’s 10-year yield fell to 3.87%, marking its lowest level since early November, while France’s benchmark 10-year yield slipped to 2.38%. The moves reflect a broad-based flight to quality as traders await the release of December inflation data from Germany and France, which could influence the ECB’s guidance on future rate decisions. The yield curve flattened slightly, with the 2-year German bond yield falling to 2.51%, underscoring expectations of a potential pause in monetary tightening. The ECB’s upcoming meeting on December 12 is expected to maintain the key refinancing rate at 4.50%, but markets are closely monitoring any shift in language on future rate cuts. A dovish tone could further pressure yields, while a more hawkish signal may reverse recent gains. Recent economic indicators suggest moderating inflationary pressures, with core inflation in the eurozone declining to 2.6% in November, below expectations. However, services sector growth remains resilient, and industrial output showed signs of stagnation, creating uncertainty about the trajectory of the economy. These mixed signals are contributing to heightened market volatility and tighter spreads between peripheral and core eurozone debt. The decline in yields has benefited government bond markets, with the iShares Euro Government Bond ETF (IE00B4L5YB44) rising 0.7% in early trading. Investors are also increasing exposure to longer-dated debt, boosting demand for 30-year French and German bonds. The shift suggests growing confidence in a soft landing scenario, though risks remain from geopolitical tensions and uneven regional recovery.