U.S. Treasury, European Bond Yields Fall After Fed, ECB Hold — 2nd Update

By Emese Bartha and Paulo Trevisani

Government bond yields fell in the U.S. and in Europe Thursday following interest-rate holds by the respective central banks.

The ECB paused a hiking cycle and kept the deposit rate at 2.5%, as expected, although inflation remains a concern and further rate increases remain possible. President Christine Lagarde indicated inflation remains a risk and upcoming readings will be key to the central bank's next move.

"Predicting the path of ECB monetary policy is becoming more challenging," Deutsche Bank's Chief European Economist Mark Wall said in a note. "We expect one more hike to 2.75% in December while Lagarde is still President, and that's probably the end of the hiking cycle."

ECB policymakers will remain concerned about inflationary pressures in addition to widening intra-eurozone bond spreads.

"The ECB's problem is no longer just inflation; it is inflation plus spreads," said Kevin Thozet, member of the investment committee at Carmignac.

The 10-year German Bund yield fell 3.3 basis points to 3.351%, while the 10-year French OAT yield was down 3.2 basis points at 4.908%. The U.K. gilt yield was down 4.9 basis points at 5.298%, with focus shifting from Wednesday's budget to next week's Bank of England decision.

In the U.S., the 10-year Treasury yield traded at 4.964%, down from Wednesday's settlement of 5.044%. The decline happened even as fresh U.S. indicators showed robust economic growth and above-target inflation.

Gross domestic product expanded at a 3.4% annualized pace in the third quarter, accelerating from 2.2% and beating Wall Street Journal consensus of 3.1% growth.

The 12-month personal-consumption expenditures price index accelerated to 3.6% in September from 3.4% in August, compared with a 3.7% consensus. PCE is the Federal Reserve's preferred inflation gauge, which the central bank aims to keep at 2%.

The robust data would normally push yields higher, but there were signs of moderating demand, said Chris Osmond, chief investment officer at Fifth Third Wealth Advisors. He added that inflation was broadly in line with expectations, as opposed to an upward surprise.

Osmond also noted that yields were already falling after the Fed kept rates at the 3.75%-4% range set in September, with Chairman Kevin Warsh avoiding specific guidance. Worries about the artificial-intelligence buildup also were increasing demand for the safety of bonds, pressuring yields lower.

"Today's move should not be interpreted as the bond market abandoning the higher-for-longer narrative," he said. "Investors increasingly want evidence that spending is translating into sustainable earnings, productivity and cash-flow growth."

Markets were mostly pricing in a hike in December, although odds of another hold edged higher to 20% from 15%, according to CME's FedWatch tool.

Write to Emese Bartha at emese.bartha@wsj.com and to Paulo Trevisani at paulo.trevisani@wsj.com

(END) Dow Jones Newswires

October 29, 2026 11:31 ET (15:31 GMT)