EU Bonds Weekly: A hawkish-to-dovish tilt took hold as softer inflation reshaped ECB expectations.
Early in the week, several research notes leaned hawkish, penciling in a final 25bp ECB hike in September that would take the deposit rate to 2.50%, citing sticky core inflation, goods-price pressure from supply bottlenecks, and a Governing Council still in tightening mode. On that view, one house projected the 10-year Bund drifting toward 3.1% over 12–18 months, the French 10-year OAT toward 2.1–2.2%, and the Italian 10-year BTP near 2.6% as spreads widen.
By midweek, the published consensus shifted noticeably dovish: eurozone 2-year yields were flagged as having fallen more than 30bps since mid-June on softer CPI, markets have priced out a July hike and give September only a coin-flip probability, and analysts pointed to lower German 2-year yields ahead. Curve steepening was a recurring theme — driven by front-end relief and, in the Netherlands, large pension-fund transitions. Rate cuts were penciled in for 2027.