A planned summit between US President Donald Trump and Russian President Vladimir Putin was suspended the day before after Moscow rejected a proposed immediate ceasefire in Ukraine. Meanwhile, US officials in the Middle East increased pressure on Hamas to disarm in support of a fragile ceasefire in Gaza.
The yield on German ten-year Bunds remained at 2.55%, while the yield on the two-year Schatz remained unchanged on the day at 1.911%.
Eurozone government bonds held steady on Wednesday despite a sharp drop in gold values and rising uncertainty on the geopolitical front, while French bonds held to their recent range ahead of a rating review this week.
An overnight sell-off in gold, which saw prices fall the most in one day since 2020, briefly caused some volatility in broader markets but did little to dent other safe havens such as bonds.
French government bonds held at around 3.35%, about where they have been trading for the past week, since Prime Minister Sebastien Lecornu’s newly formed government appeared to have reached a compromise with left-wing lawmakers over its budget plans, averting another shake-up.
On Friday, Moody’s will assess France’s creditworthiness. S&P Global made a surprise downgrade last week, warning that political instability is hampering the French government’s ability to get its finances under control. Fitch did the same last month. The European Central Bank meets next week and is not expected to make any changes to monetary policy. Carsten Brzeski, ING’s global macro head, said few data had been released since the September ECB meeting and there were no external factors that could prompt policymakers to cut rates, or signal that a cut was imminent. “The most common comments simply repeat the now familiar feeling that the ECB is in a ‘good place’, with little urgency to adjust rates,” he said.
He added that while October seemed like a done deal in terms of unchanged behavior, traders were underestimating the chances of a cut at the December meeting. Markets reflect virtually no chance of any change in borrowing costs in December and little chance of any movement until March next year.
The gap between German Bunds and 10-year British government bonds reached the narrowest since March at 183.04 basis points on Wednesday, as British government bond yields fell sharply after earlier data showed inflation was slower than expected last month.
The Bank of England is expected to cut rates at least once this year and could make another cut in the first half of 2026, based on the derivatives market.
“Traders are betting that softer inflationary pressures could prompt the BOE to cut rates toward the end of the year, as these inflationary pressures give the BOE more leeway to ease monetary policy sooner than expected,” said XTB research director Kathleen Brooks.
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