FX.co ★ German Bund Yields Slide on Weaker Inflation

Germany’s 10-year Bund yield dropped to 2.84% following unexpectedly weaker inflation data. In December, annual inflation fell to 1.8%, down from 2.3% in November. This figure came in under projections and dipped below the European Central Bank's (ECB) 2% target for the first time since September 2024. It marked the second-lowest rate since early 2021, influenced by slower growth in food prices and more significant declines in energy costs. Meanwhile, core inflation eased to 2.4%, the lowest level witnessed since mid-2021. The EU-harmonized Consumer Price Index (CPI) also fell short of expectations. In France, consumer prices increased less than anticipated, further indicating signs of disinflation across the eurozone. As a result, money markets now indicate almost no likelihood of an ECB rate hike by December 2026, with about a 24% chance by March 2027. Nevertheless, Bund yields are underpinned by expectations of substantial government debt issuance, forecasts of German fiscal stimulus for 2026, and persistent geopolitical uncertainties.