Eurozone government bond yields fell across the curve on Thursday as crude oil lost roughly 20% this week. Germany's 10-year yield dropped to its lowest level since August. The oil slide is draining stagflation fears out of sovereign debt markets, according to Investing.com.
Germany's benchmark 10-year Bund yield fell to 3.27%, its lowest mark in nearly three months. The policy-sensitive two-year Bund yield tumbled to 2.984%, its lowest level since October 2 and below the 3% threshold.
Brent drops below $100 a barrel
Brent crude futures dived nearly 9% overnight and slipped below $100 a barrel, a level not seen since mid-September. The move extended Brent's losses this week to roughly 20%. If the decline holds through Friday's close, it would be the largest weekly drop in oil prices since April 2020.
Throughout October, soaring crude and natural gas prices had added stagflationary pressure across the euro zone. That threatened to push the ECB into another interest-rate increase despite stalling regional demand. Falling oil is now easing the imported cost pressures that had underpinned elevated breakeven inflation rates.
Midterm results revive hopes of a US-Iran off-ramp
Investing.com ties the drop in energy prices to the U.S. midterm elections, where Democrats took full control of Congress from President Donald Trump's Republicans. Trading desks calculate that an opposition-controlled House and Senate will assert war powers oversight and limit the White House's ability to take further unilateral military action after strikes on Iranian installations on Qeshm Island earlier this week.
The shift has also revived expectations that Washington and Tehran will turn to Qatari-mediated backchannel diplomacy. That reduces the perceived threat of a wider conflict that could shut tanker transit through the Strait of Hormuz.
Bank of England expected to hike
The Bank of England is widely expected to deliver its first rate hike since 2023. Bonds were more subdued, with the 10-year gilt yield lingering at its lowest since August, touched in the previous session at 5.098%. The two-year gilt yield, which tracks BoE rate expectations, stood at 4.72%, a more-than-one-month low.
Jefferies' Mohit Kumar expects a dovish hike and says today should be the last one of this cycle.
Source: Investing.com
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