PARIS (Reuters) – European bond yields and the euro fell on Thursday after announcements from the European Central Bank (ECB), which maintained the status quo on its rates but lowered its inflation forecast for 2024, paving the way for a upcoming monetary easing.

The Frankfurt institute now forecasts overall inflation of 2.3% this year, compared to 2.7% previously anticipated.

Excluding energy and food, considered volatile elements, inflation in the twenty countries sharing the single European currency could fall to 2.6% in 2024, 2.1% in 2025 and 2.0% in 2026, according to the new projections from the ECB.

Around 2:40 p.m. GMT, the ten-year Bund yield lost around three basis points, to 2.297%, and the two-year yield, more sensitive to expectations about changes in interest rates, lost around 6.5 points, to 2.8165%.

The yield of the French OAT fell by 3.4 points, to 2.747%, and its Italian equivalent BTP dropped 5.3 points, to 3.606%.

Sovereign yields in the region have tightened since the start of the year, with the ten-year German Bund, the benchmark for the bloc, gaining around 30 points before the ECB’s latest announcements. This tension in the bond compartment is linked to the decline in investors’ expectations of a rapid and marked drop in interest rates.

“The further downward revisions to inflation and growth forecasts in today’s ECB statement support expectations of monetary policy easing,” said Massimiliano Maxia, fixed income specialist at Allianz Global. Investors.

European Central Bank short rate futures (ESTR) forecast rate cuts of 102 basis points in 2024, up from 92 basis points before the ECB announcements.

On the foreign exchange market, the euro is trading at $1.0896 (-0.01)%, whereas it was moving above 1.089 before the ECB’s announcements.

(Written by Claude Chendjou, with Stefano Rebaudo and Harry Roberts in London, edited by Blandine Hénault and Kate Entringer)

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