Euro Zone Bond Yields Fall After U.S. Services Data Signals Slowdown

Summary:
On July 3, Euro zone bond yields fell following a report that showed a significant slowdown in the U.S. services sector in June, increasing expectations for interest rate cuts from the Federal Reserve and other central banks. Germany’s 10-year bond yield, considered the euro area benchmark, dropped by 6 basis points to 2.549%. The U.S. 10-year Treasury yield also decreased by 9 basis points to 4.343%. Germany’s 2-year bond yield, influenced by European Central Bank rate expectations, fell by 1 basis point to 2.899%.
In France, the risk premium on French debt narrowed as efforts to block the far-right National Rally (RN) party from securing a parliamentary majority intensified, with over 200 candidates from the Left Alliance and President Emmanuel Macron’s party withdrawing from the election to support the best-placed candidates against RN. This strategy is seen as reducing the chances of RN leader Marine Le Pen winning a majority and is considered a positive move for the markets. France’s 10-year bond yield fell by 8 basis points to 3.253%, with the yield spread between French and German 10-year bonds narrowing to its tightest since June 13.