Euro zone yields steady before ECB, BoE policy meetings

Euro zone government bond yields were steady on Thursday, with investors bracing for the European Central Bank to reaffirm its higher-for-longer rate stance later in the day.

Investors pared back bets on future ECB rate hikes earlier this week as the impact of recent remarks by ECB board member Isabel Schnabel faded.

The Bank of England will also be in focus on Thursday, while the Bank of Japan will announce its decisions on Friday.

Germany's 10-year yields DE10YT=RR, the euro area’s benchmark, were down 0.5 basis points (bps) at 2.86%. They hit 2.894% last week, their highest level since mid-March.

Money markets priced in an around 12% probability of a tightening move by December 2026 <EURESTECBM9X10=ICAP> and a 35% chance by March 2027 <EURESTECBM11X12=ICAP>, down from over 50% last week. The ECB depo rate is currently at 2%.

German 30-year yields DE30YT=RR were up 0.5 bps at 3.49%, after hitting 3.498% last week, their highest level since July 2011, as long-dated debt came under pressure on expectations for heavier bond supply.

Yields on German 2-year Schatz DE2YT=RR fell 0.5 bps to 2.14%.

Italy's 10-year government bond yields IT10YT=RR dropped one bp to 3.52%, with the gap versus Bunds hitting a fresh 16-year low at 64.40 bps.

-Stefano Rebaudo/Reuters