Euro area bond yields fall as traders see stronger odds of big Fed cut

Euro zone government bond yields retreated on Friday, echoing a slump in U.S. Treasury yields after media reports ignited speculation about a substantial interest rate reduction by the Federal Reserve next week. The Wall Street Journal and the Financial Times suggested a toss-up between a bold 50 basis point (bps) or a more tempered 25 bps cut on Wednesday, surprising markets that had previously leaned towards the latter.

The rate-sensitive U.S. 2-year Treasury yield dipped 6.8 bps to 3.58% on Friday, as traders snapped up bonds in anticipation of an aggressive Fed move. Bond prices and yields move in opposite directions.