Euro-area bond yields have tumbled in recent weeks, amid galloping expectations that the European Central Bank will make a seismic about-turn and slash interest rates next year. A 25-basis point cut in official rates is almost fully priced in for as soon as March, with close to 150 basis points anticipated for 2024 in futures contracts. The market is getting way, way ahead of itself, risking disappointment for investors who’ve chased bond prices higher.

While Germany sets the pace in European fixed income, bunds are just matching an equivalent yield decline for Treasuries. US 10-year yields have dropped dramatically since reaching 5% in mid-October, a peak that triggered a global shift back into fixed income after the entire asset class had been friendless since the start of April. The dollar has also weakened since early November which has added fuel to the fire behind equities and bonds in the fourth quarter.