Euro zone bond yields steady after Fed rate cut
Updates prices at 1500 GMT
By Linda Pasquini and Samuel Indyk
LONDON, Sept 19 (Reuters) -Euro zone government bond yields remained steady on Thursday, a day after the Federal Reserve kicked off its easing cycle with a larger-than-usual interest rate cut but signalled policy moves would be measured through the end of the year.
The U.S. central bank lowered its key interest rate by 50 basis points to the 4.75%-5.00% range. Most analysts had expected a quarter-percentage-point cut as the most likely outcome of the two-day policy meeting.
But in flagging that they only see another 50 bps of cuts by the end of 2024, policymakers hinted they might lower rates at a steady pace.
"I think when it comes to yesterday's meeting, (Fed Chair Jerome) Powell was pretty good at delivering a balanced message," which the market reaction clearly reflected, said Jussi Hiljanen, chief rates strategist at lender SEB.
According to Hiljanen, what came through was that the 50-bp cut was not an emergency measure but rather a way to catch up, and that the Fed would have lowered its rate by 25 bps at the previous meeting if all data had been available at that time.
"The market reaction reflected that message," he added.
The size and importance of the U.S. economy means that the Fed has an outsized influence on financial markets and central banks globally.
Germany's 10-year yield DE10YT=RR, the euro zone's benchmark, was little changed at 2.193%, a 1-1/2-week high.
The two-year yield DE2YT=RR, which is more sensitive to changes in interest rate expectations, was down 5 bps at 2.22%.
Italy's 10-year yield IT10YT=RR was 1 bp lower at 3.56%, and the gap between Italian and German bund yields DE10IT10=RR was at 136 bps.
When it comes to the ECB, the key thing to follow was whether there would be any change in the rhetoric of governing council members after the Fed rate cut, deviating from the data-dependent message that they have been adopting for quite a few months, Hiljanen said.
The ECB's rate cutting cycle could accelerate over the coming months, Fabio Panetta, a member of the central bank's governing council, said on Thursday.
However, in a sign of the debate within the ECB's rate-setting body, Bundesbank President Joachim Nagel said on Wednesday that interest rates needed to remain sufficiently high to resolve price pressures
The ECB cut rates last week for the second time this year and markets are now trying to guess when the next move will come. While most bets focused on December, markets are pricing a one-in-three chance of an ECB rate cut next month.
Investors are also trying to assess whether the Fed's move will affect the ECB.
"It definitely increases the chance for a cut in October with this 50-basis-point cut by the Fed," said Dario Messi, head of fixed income research at Julius Baer.
"The growth outlook in Europe is still very weak. Not much further patience is needed by the ECB here."
Reporting by Samuel Indyk and Linda Pasquini; Editing by Mark Potter, Alex Richardson and Paul Simao
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