Euro zone bond yields rise after ECB takes positive view on economy

Dec 18 (Reuters) - Euro zone government bond yields edged up and traders increased their bets on future European Central Bank rate hikes, following the ECB’s widely anticipated decision to keep rates unchanged.

The ECB took a more positive view on the euro area economy that has shown resilience to global trade shocks.

Germany’s 10-year yields, the euro area’s benchmark, were up one basis point (bp) at 2.87%. They hit 2.894% last week, their highest level since mid-March. Money markets priced in an around 20% probability of a tightening move by December 2026 and a 45% chance by March 2027, respectively from 12% and 35% before the statement.

Traders assigned a more than 50% probability of a tightening move in March 2027 last week. The ECB depo rate is currently at 2%.

“Even with brighter near-term growth, talk of higher ECB rates is premature. Inflation is at target, the labour market is cooling, and domestic demand hardly looks overheated,” said Sylvain Broyer, economist at S&P Global Ratings.

“Better to wait a couple of quarters and see how Germany’s fiscal boost and the exchange rate play out before opening the debate on rate hikes,” he added.

Traders assigned an around 10% chance of a rate cut in 2026 from over 60% in mid-October. Meanwhile, U.S. borrowing costs dropped, with the benchmark 10-year down 3.5 bps to 4.12%, after U.S. consumer prices increased less than expected in the year to November.

(reporting by Stefano Rebaudo; editing by Alexandra Hudson)