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ECB Rate Cut Expectations Failed: German 2-Year Bund Yield Hits 3-Month High, Is Market Trend Shifting? ⑴ Money markets pared bets on ECB rate cuts on Thursday, now anticipating no further ECB easing this year. ⑵ Germany's interest-rate-sensitive 2-year Bund yield rose to a 3-month high as a result. ⑶ The market now sees only a 44% probability of a 25 basis point ECB rate cut this year, compared to a near certainty before the US-EU trade deal and ECB meeting were announced a week ago. ⑷ At the meeting, the ECB kept interest rates unchanged and offered a moderately optimistic assessment of the eurozone economy. ⑸ German 2-year Bund yields rose nearly 3 basis points on Thursday, reaching a high of 1.965%, the highest level since early April. ⑹ Rohan Khanna, head of European rates strategy at Barclays, noted that ECB President Christine Lagarde expressed dismissiveness at her press conference about any potential dovish policy shift. ⑺ Inflation data from some of the eurozone's largest economies released Thursday also offered little reason for further rate cuts, with price increases in line with or slightly above expectations, suggesting that the eurozone's overall data, due on Friday, will be close to the ECB's 2% target. ⑻ Although some policymakers had expressed concern last month that inflation could fall significantly below target, necessitating further rate cuts, those concerns now appear unlikely. ⑼ Long-term government bond yields declined slightly, flattening the yield curve. ⑽ The German 10-year bond yield, the eurozone benchmark, fell about 1 basis point to 2.70%, reversing a slight rise the previous day. ⑾ It is now about 73 basis points above the two-year yield, bringing the yield curve to its flattest level in a month. ⑿ Later release of US personal consumption expenditures (PCE) inflation data, the Federal Reserve's preferred inflation indicator, may be more important to the market than the European inflation data.