Eurozone bond yields steady as investors await inflation data; US Treasury yields ease after midterm elections

Rising inflation expectations have strengthened bets on another ECB rate hike, keeping eurozone bond markets focused on Wednesday's data.

The election outcome could have significant implications for several market-sensitive sectors, including artificial intelligence (AI) data-centre investments, the US fiscal outlook, defence spending and regulations governing healthcare, banking and cryptocurrencies. Investors were also assessing the possibility of legislative gridlock between US President Donald Trump's administration and the newly elected Democratic Congress.

Germany's 10-year government bond yield was last little changed at 3.3108%, while the yield on two-year German government bonds, which is particularly sensitive to interest rate expectations, remained steady at 3.0167%.

In contrast, the 10-year US Treasury yield fell 2.3 basis points to 4.927%, reflecting movements in the US bond market following the election results.

Meanwhile, investors continued to monitor developments in the energy market. Brent crude futures were little changed at $104.35 per barrel on Wednesday after declining for two consecutive sessions, as markets awaited Washington's next move in the US-Israeli war on Iran.

Eurozone Inflation Data in Focus

Investors were also awaiting eurozone inflation figures due later on Wednesday, with the latest data expected to show an acceleration in price pressures in October.

Economists polled by Reuters expect the eurozone's flash inflation reading to rise to 4% in October from 3.8% in September, potentially strengthening the case for further monetary tightening by the European Central Bank (ECB).

The ECB kept interest rates unchanged last week, but expectations of another rate increase in December have strengthened, with an increasing number of policymakers signalling support for further tightening.

Bundesbank President Joachim Nagel said on Tuesday that a December rate increase appeared increasingly necessary from the current perspective, unless the inflation outlook improves significantly.

Money markets were pricing in approximately a 70% probability of a December rate hike, reflecting growing concerns over persistent inflation in the region.

The movement in German government bond yields, particularly shorter-dated securities, will remain closely watched as investors assess the ECB's next policy decision and the implications of fresh inflation data.