Belgian government bond yields fell to their lowest levels in nearly a year on Wednesday, as weak economic data across the eurozone raised investors' expectations that the European Central Bank (ECB) will cut interest rates sooner than previously forecast next year.
Yields on 10-year Belgian government bonds dropped to 2.529%, more than a percentage point below October's levels and only fractionally above this year's record low of 2.510% in January.
Similar declines were visible across the rest of the eurozone. Germany's 10-year bond yield, widely considered the eurozone benchmark, fell to a year-long low of 1.888%, down from 2.974% in October.
Banking on credibility
Analysts attributed the decrease to weak economic data across the eurozone, which in turn led investors to up bets that the ECB will cut interest rates early next year.
The ECB has hiked interest rates on ten occasions over the past year-and-a-half in its efforts to curb soaring prices, bringing its benchmark deposit facility rate from negative levels to a record high of 4.0%.
The decline in Eurozone bond yields comes in spite of the fact that ECB President Christine Lagarde has repeatedly attempted to dissuade investors from believing that the ECB will cut rates in the near future.
"We don't think that it's time to lower our guard," she said after the bank's last meeting in mid-December. "There is still work to be done..."
One analyst suggested that such warnings have had little impact on markets as the ECB is "really struggling with credibility".
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"The ECB [is] telling us that rates will stay high and could even go higher, but markets simply don't believe them anymore," Mike Riddell, a portfolio manager at Allianz Global Investors, told The Financial Times,
According to Eurostat, the eurozone economy contracted by 0.1% in the third quarter of this year after expanding by 0.2% in the second. Belgium performed significantly better than the eurozone average, growing at a quarterly rate of 0.5% in the third quarter, up from 0.3% in the second.
In its latest Autumn Forecast, the European Commission estimated that the eurozone would expand by just 0.6% this year, down 0.2 percentage points from its previous Summer Forecast. It also predicted that eurozone growth would rise only modestly next year to 1.2%.
Belgium's growth rate is expected to be higher than the eurozone average but still low by historical standards at 1.4% in 2023 and 2024, down from 3.2% in 2022.
The eurozone's poor growth figures come in spite of positive inflation data across the currency union in recent months. Eurozone inflation dropped to 2.4% in November: only fractionally above the ECB's 2% target rate and well below October 2022's peak of 10.6%. Belgium's inflation rate is currently negative.
