Eurozone government bond yields fall and gap between Italy and Germany narrows after Fitch assessment

Eurozone government bond yields fell on Monday after US economic data shifted market expectations to a higher chance of two Federal Reserve rate cuts in 2024.

At the same time, the yield between the Italian and German ten-year government bonds reached the lowest level in a month and a half after Fitch confirmed its rating for the Italian government bonds.

The yield on German ten-year bonds, the benchmark for the eurozone, fell 1.5 basis points (bps) to 2.49%.

Italy’s 10-year yield fell 6.5 basis points to 3.76%, and the spread between Italian and German 10-year yields – a measure of investor demand for risk premia for holding bonds from the most indebted countries in the Eurozone – amounted to 130 basis points. points after reaching 122.60 basis points, the lowest level since March 20.

The difference between the yield on ten-year US government bonds and the yield on German government bonds – an indicator of the expected difference between the European Central Bank and the Fed – narrowed to 200 basis points.

Money markets are pricing in around 75 basis points of interest rate cuts from the ECB in 2024 and 47 basis points from the Fed, implying a 25 basis points cut and a 90% chance of a further cut in 2024.

The yield on German government bonds with a term of 2 years, more sensitive to the ECB’s interest rate expectations, fell by 4 basis points to 2.89%.