Year-end trading activities were slow, exacerbating the December sell-off, causing European bond prices to fall.

In Friday's trading, the European bond market saw a decline, mainly due to traders' expectations that major central banks' future interest rate cuts may not be as aggressive as anticipated. In addition, reduced trading volume after the holiday season further exacerbated market volatility. Following the Christmas holiday, trading resumed and the yield on the 10-year German government bond rose by 7 basis points to 2.40%, reaching its highest level since the end of November. At the same time, the US Treasury market performed relatively well, with the 10-year Treasury yield rising by only 3 basis points to 4.61%. Jordan Rochester, Head of Macro Strategy for Europe, the Middle East, and Africa at MUFG Bank, commented that these market movements occurred in a "very fragile market" and predicted that "over the next two weeks, we may continue to see a continuation of the December market trend." Furthermore, he pointed out that the rise in natural gas prices may be a key factor affecting market demand. Russian President Vladimir Putin expressed doubt about maintaining the agreement to deliver natural gas to Europe through Ukraine, leading to a 5% increase in futures contract prices. Rochester further analyzed that if the increase in natural gas prices leads to rising inflation, it may put pressure on the European Central Bank's ability to lower interest rates. Since early December, the yield on 10-year German government bonds has risen by about 30 basis points, on track for the largest monthly increase since September 2023. This repricing phenomenon occurred as traders reduced bets on a rate cut by the European Central Bank, as the Federal Reserve's stance in early December was more hawkish than expected, hinting at a more cautious approach to policy easing. The money market currently fully expects four rate cuts next year, with the likelihood of a fifth rate cut falling below 50%, significantly down from over 80% last week. This change in expectations reflects the market's latest assessment of global central bank monetary policy prospects.