Euro-area government bond (EGB) yields steepened in 2025, largely due to rising long-term rates. The shift followed a period of flat yields and is driven by fiscal expansion amid geopolitical uncertainty, reduced central-bank demand, and structural changes such as the Dutch pension‑fund reform. Euro-area non-banks now hold more than 50% of long-dated EGBs, making them vulnerable to valuation losses as yields climb. Investor composition varies by maturity: banks and foreign investors dominate short and medium‑dated bonds, while non-banks control the longest maturities. Long-dated bonds also face higher swap rates, increasing hedging costs. Demand‑elasticity analysis shows non-banks reallocate toward longer maturities when short‑term rates fall. Hedge funds increasingly trade EGB futures, maintaining short positions early in 2025 and shifting toward longer maturities by year‑end.
© European Central Bank, 2025.
Summary derived from the ECB website (https://www.ecb.europa.eu ).
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