Germany’s 10-year Bund yield edged up to around 2.83% as investors awaited key US inflation data later today amid this week’s heavy sovereign bond issuance. The data is expected to show firmer core inflation in December, potentially pushing back the timing of Federal Reserve rate cuts. In Europe, ECB Governing Council member François Villeroy de Galhau reiterated on Tuesday that expectations of an ECB rate hike this year are “fanciful.” The ECB kept rates unchanged in December and upgraded some growth and inflation forecasts, reinforcing expectations that policy will remain on hold for an extended period. This view is supported by Eurostat data showing headline inflation easing to 2.0% in December, back at the ECB’s target. Investors also took note of updated hedging plans from Dutch pension fund PFZW, which may ease near-term concerns about additional pressure on long-dated government bonds from the Dutch pension system’s transition to a new framework.
