Eurozone borrowing costs steady ahead of ECB rate decision

Comments from ECB officials that inflation was probably close to its peak have bolstered expectations that the central bank is likely to slow its pace of interest-rate increases to half a point

Investors are looking towards the European Central Bank's policy meeting next week.

The market cost for eurozone governments to borrow money held steady near its lowest level in months as investors looked towards the European Central Bank's policy meeting next week.

Comments from ECB officials this week saying inflation was probably close to its peak have bolstered expectations that the central bank is likely to slow its pace of interest-rate increases to half a point from 75 basis points previously, on December 15. 

Germany's 10-year bond yield, seen as the benchmark for the eurozone, rose one basis point to 1.8%, while the Irish and French 10-year yields traded at around 2.3%. 

A sharp slowdown in inflation in the US in October and the eurozone in November has encouraged investors to believe the worst may be over in terms of price pressures, causing global yields to drop sharply in recent weeks.

"At the year-end you have some investors finally using their cash to invest," said Patrick Barbe, head of European investment-grade fixed income at Neuberger Berman.

Yet many investors say the sharp drop in eurozone yields has gone too far, given that annual inflation is still running at 10% and that the ECB is set to raise rates to at least 2% next week.

"We are still at a very high level of inflation in the eurozone," said Camille de Courcel, head of European rates strategy at BNP Paribas Markets.