PARIS (Reuters) – Euro zone sovereign bond yields rose on Thursday despite an expected rate cut by the European Central Bank (ECB), widely anticipated by markets.

At around 08:00 GMT, the yield on the 10-year German Bund, the benchmark for the euro zone, rose by around three basis points to 2.128%, after reaching a peak of 2.135% during the session.

The two-year rate rose by almost four basis points to 2.174%, after a peak during the session at 2.178%.

The rate of the French 10-year OAT rose by around two basis points, to 2.831%, compared to a high during the session at 2.840%.

The ECB is due to deliver its monetary policy decision at 12:15 GMT and investors are expecting a further 25 basis point cut in the cost of credit in the eurozone after a similar decision taken in June by the Frankfurt institute.

This would bring the deposit facility rate down to 3.5%, which until June was at 4.0%, the highest level since the creation of the euro in 1999.

“The ECB will begin its rate cut cycle in earnest,” writes Maxime Mura, rates and credit manager at Swiss Life Asset Managers France.

According to him, the increased risks of an economic slowdown should justify the continuation of this downward cycle at the next meetings.

A Reuters survey of economists released this month showed the ECB could cut rates again in December, bringing the total to three cuts this year, while financial markets forecast a total of four reductions in 2024.

In this context of uncertainty, the attention of operators will focus mainly on the speech at 12:45 GMT by Christine Lagarde, the president of the BCE, in particular her prospects in terms of economic growth and inflation.

“Today’s ECB projections are critical, but the hurdle to consecutive cuts appears high,” notes Michael Leister, head of rates strategy at Commerzbank.

Deutsche Bank analysts agree, noting that the main question will be what signal the ECB will give about the next steps in its monetary easing cycle and how quickly it might cut rates.

“Our European economists are counting on a quarterly pace of declines that will continue in December and until 2025,” they write in a note, adding however that the ECB would like to retain the possibility of easing its policy more quickly if the downside risks to inflation materialize.

(Written by Claude Chendjou, with contributions from Amanda Cooper, edited by Kate Entringer)

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