Euro zone bond yields firm ahead of rate decisions, US-China meeting

By Joice Alves

Euro zone government bond yields steadied on Wednesday as investors awaited central bank policy updates, including a rate decision from the Federal Reserve later in the day, and a meeting between the U.S. and Chinese presidents on Thursday.

The U.S. Fed is widely expected to cut interest rates on Wednesday, (0#USDIRPR) while both the European Central Bank and the Bank of Japan are expected to hold rates steady on Thursday.

Traders are also watching U.S. President Donald Trump's Asia trip for any signs of an improved relationship with China.

Trump said in a speech in South Korea, where he is scheduled to meet Chinese President Xi Jinping, that he thought they would get a "great deal" done for both sides.

Sources told Reuters that China's state-owned COFCO had bought three U.S. soybean cargoes this week in another sign of easing tensions between the world's two largest economies.

"Markets appear to be in a wait-and-watch mode with a busy calendar ahead. Focus is on the Fed and ECB meetings, the Trump-Xi summit and a host of earnings releases this week," said Mohit Kumar, chief strategist for Europe at Jefferies.

"For the Fed today, we expect a 25 basis point cut and an end to QT (Quantitative Tightening). (Fed Chair Jerome) Powell would not have a lot of data to back any strong conviction for the future outlook," Kumar added.

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The German 10-year bond yield (DE10YT=RR), the benchmark for the euro zone bloc, was little changed late on Wednesday at 2.62%, having traded around this level for most of the day.

Italy's 10-year yield IT10Y dipped 1.6 basis points to 3.386%.

Germany’s 2-year yields (DE2YT=RR), which are more sensitive to expectations for ECB monetary policy, were also little changed at 1.98%.

The yield gap between safe-haven Bunds and 10-year French government bonds (DE10FR10=RR) — a market gauge of the risk premium investors demand to hold French debt — is also taking a breather, standing at 77.8 bps.

The spread hit 87.96 bps in early October, its widest since January, driven by investor concerns over France's fiscal trajectory.