Euro-area government bond yields held near multi-year highs on Thursday as
investors awaited the European Central Bank policy decision. Analysts expect a
25bp hike, no fresh guidance and a reiteration of data dependence. Germany’s
10-year yield rose 0.5bp to 3.44% after touching 3.4514%, its highest since
April 2011. Some market participants say rate-hike expectations may be overdone
because energy-driven growth drag could help curb inflation; they warn that a
dovish ECB tone could send borrowing costs sharply lower. Traders price the ECB
deposit rate at 2.74% by December, up from 2.25% today—implying two more 25bp
hikes—and expect 3.10% by Sept 2027, fully pricing a third hike and implying
roughly a 40% chance of a fourth. A strategist at a German commercial bank, Erik
Liem, said Lagarde’s response to recent bond moves will be watched closely and
that even a small dovish hint could have a large market impact today.
