Euro zone bonds little changed as oil prices steady

Synopsis

Euro zone bond yields showed little movement on Thursday, coinciding with steady oil prices. Recent U.S. inflation data has lessened the market's anticipation of a Federal Reserve rate increase in the upcoming month. With energy dialogues taking place and the potential reopening of the Strait of Hormuz, investors are on alert. Rising oil prices could lead to continued interest rate hikes by the ECB.

Euro zone bond yields were little changed on Thursday as oil prices steadied and U.S. inflation data cooled expectations for a rate hike from the Federal Reserve next month.

Germany's 10-year yield, the benchmark for the euro zone, was little changed at 3.157%, within its recent range.

Investors had turned their focus to Wednesday's ‌U.S. consumer price ⁠inflation ⁠data which showed benign underlying price pressures, prompting markets to reduce the chances of ​an interest rate hike from the Fed.

Financial markets were pricing in a roughly 35% ​chance of a rate increase at the Fed's September 15 to 16 policy meeting, down from about 50% on Tuesday.

The data is closely ​watched, given the size of the U.S. economy ⁠and the ‌influence of the Fed on other central banks ​and global markets.

"The ​U.S. CPI figures released yesterday came in largely in line ⁠with expectations, providing a bit of relief for ​fixed income markets," said Jens N198rvig Pedersen, director, FX ​and rates strategy at Danske Bank.

U.S. producer prices data released later on Thursday will provide another readout on the U.S. inflation picture and be closely watched by markets.

Investors are still watching discussions between Washington, Tehran and mediators on any end to the Iran war ‌and the potential reopening of the Strait of Hormuz, although a deal appears to be out of reach with attacks ​on ships ​occurring this week and ⁠both sides stepping up their rhetoric.

The stalemate is keeping oil prices steady although elevated oil prices since the start of the war have prompted ​investors to bet that the ECB will continue to raise rates after a rate hike in June.

Markets are pricing in around a 90% chance of a quarter-point rate hike at next month's meeting.

Germany's two-year yield, which is sensitive to changes in interest rate expectations, was up about 1 basis point at 2.781%.

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