German yields mixed after sharp drop, geopolitics in focus
By Stefano Rebaudo
Oct 2 (Reuters) -German borrowing costs were mixed on Wednesday after long-dated yields recorded their biggest daily fall since mid-June the day before on concerns about economic growth.
Fears of a wider regional conflict in the Middle East added downside pressure as investors rushed into the safety of government bonds.
Manufacturing activity across the euro zone declined at its fastest pace this year in September.
Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, rose 0.5 basis point (bps) to 2.03%. It hit 2.011% on Tuesday, its lowest level since January.
Markets priced in a 90% chance of a 25 bps rate cut by the European Central Bank in October EURESTECBM1X2=ICAP from 80% late Friday.
Germany's two-year bond yield DE2YT=RR, which is sensitive to ECB rate expectations, was down 0.5 bps at 2.02%. It hit 1.987% on Tuesday, its lowest level since December 2022.
The gap between French and German 10-year yields DE10FR10=RR - a gauge of risk premium that investors demand to hold France’s government bonds - was last at 78 bps, from around 70 bps in mid-September. It reached its widest since 2012 beyond 85 bps during France's parliamentary elections.
Prime Minister Michel Barnier announced steep public spending cuts and targeted tax hikes for France's biggest companies and wealthiest individuals on Tuesday to narrow a gaping budget deficit.
Italy's 10-year yield IT10YT=RR rose 0.5 bps to 3.38% while the gap between Italian and German yields DE10IT10=RR widened to 133 bps.
Reporting by Stefano Rebaudo, editing by Shri Navaratnam
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