Euro zone yields fall as investors cut bets on ECB hikes

Euro zone bond yields fell as investors scaled back bets on ECB rate hikes after President Lagarde's remarks, with Schatz yields down nearly 5 bps to 2.595%. In contrast, US 2-year Treasury yields surged 5 bps to 4.236%, a 16-month high, as traders ramped up bets on Fed tightening under new Chair Kevin Warsh. The divergence widened the German-US 2-year yield spread to around 163 bps, the largest since September 2025, while the dollar strengthened on robust US data and Fed rhetoric focused on containing inflation. Money markets now price euro zone rates about 31 bps higher by year-end, down from 35 bps before Lagarde spoke.