Germany’s 10-year Bund yield held around 2.84% during the final full trading week of the year, hovering near nine-month highs as investors braced for the ECB’s monetary policy decision later in the week. The ECB is widely expected to keep interest rates unchanged for a fourth consecutive meeting, and markets are pricing in roughly a 30% probability of a 25bps rate hike by the end of 2026. Euro area inflation eased to 2.2% in November, while GDP expanded by 0.3% qoq in Q3. Most policymakers continue to describe policy rates as being in a “good place” for now. ECB President Lagarde recently suggested the central bank is likely to revise its growth forecasts higher. Meanwhile, markets remain attentive to developments surrounding efforts to end the war in Ukraine, as well as ongoing discussions among European leaders on how Russian assets frozen in Europe could potentially be used to help fund Ukraine’s defense.
