Daily Times

Euro zone yields rose and money markets trimmed bets on future rate cuts on Monday after U.S. data and remarks by Federal Reserve chair Jerome Powell strengthened expectations that central banks will not need to ease policy quickly.

Investors sold off sovereign bonds on both sides of the Atlantic on Friday following data showing an unexpected surge in U.S. job growth, prompting a rapid reassessment of how many rate cuts major central banks might deliver in 2024.

Bond prices move inversely with yields.

The U.S. Federal Reserve can be “prudent” in deciding when to cut its benchmark interest rate, as a strong economy allowed central bankers time to build confidence that inflation will continue falling, Powell said in an interview that aired Sunday. Investors expect the European Central Bank to bide some time to relax monetary policy despite weak economic data. “For now, central banks are in risk-management mode, and they are willing to be patient,” said Rohan Khanna, head of euro rate strategy at Barclays.

“While the recent data trajectory could validate the Fed’s wait-and-see approach, the same may not be so obvious for the ECB, the growth and inflation projections of which are too high in our view,” he said, adding that he left Barclays’ portfolio of trades unchanged after Friday’s U.S. figures.

German exports fell more than expected in December due to weak global demand. Germany’s 10-year government bond yield, the benchmark for the euro zone, rose 5 basis points (bps) to 2.28%.