According to the July consumer expectations survey released by the European Central Bank on the 21st, eurozone consumers' inflation expectations declined for the third consecutive month. The median expectation for inflation over the next 12 months fell to 2.9 percent from 3.0 percent in June, and the median expectation for three years ahead also declined to 2.7 percent from 2.8 percent. The five-year outlook was unchanged at 2.4 percent. Inflation is still expected to remain above the ECB's 2 percent target. The ECB raised interest rates in June in response to inflation driven by factors such as energy stemming from the Middle East situation, and a Reuters survey of economists expects an additional rate hike next month.
Falling inflation expectations reduce the likelihood of further ECB rate hikes, lowering yields.
Lower inflation expectations reduce rate hike expectations, pushing yields down.
