Euro area yields rise with US rates, weak European data in focus

Euro zone borrowing costs rose on Wednesday, with markets caught between rising U.S. yields and a weak European economic outlook, which supports expectations for European Central Bank rate cuts.

German investor morale fell this month as Donald Trump's U.S. election win and the collapse of the government in Berlin stoked uncertainty, data showed on Tuesday.

U.S. Treasury yields jumped on Tuesday as bond investors resumed pricing in President-elect Trump's expected policies of lower taxes and trade tariffs that are viewed as inflationary.

Germany’s 2-year yield (DE2YT=RR), which is more sensitive to expectations for policy rates, rose 2.5 basis points (bps) to 2.16%, after dropping around 8 bps in the last three sessions.

Germany's 10-year yield (DE10YT=RR), the benchmark for the euro area, was up 3.5 bps at 2.39%.

Italian 10-year government bond yield IT10Y, the benchmark of the euro area’s periphery, rose 4.5 bps to 3.68%.

The spread between Italian and German 10-year yields (DE10IT10=RR) – a gauge of risk premium investor demand to hold Italian debt – stood at 128 bps.

Germany's 10-year asset swap spread (ASW) (DE10IRS10Y=RR) was at -3.5 bps after hitting -7.45 bps last week, its lowest level since at least 2003, according to LSEG data.

New German Finance Minister Joerg Kukies said on Tuesday there will be no budget freeze for this year as a result of the country's three-way coalition falling apart.