Euro Area Rates Markets: A Primer: European Rates Strategy

Research evidence excerpt

Euro Area Rates Markets: A Primer: European Rates Strategy

M O R G A N S T A N L E Y R E S E A R C H

July 2026

Long-End Bund Yield Decomposition

The dominant driver of market changes in 30y Bund: ECB tightening and swap

10y German yields has been long-term spreads vs domestic and

monetary policy expectations international term premia

bp

-10

-20

-30

-30 Jan Feb Mar Apr May Jun

Jan Feb Mar Apr May Jun 10y mon. policy 10y xmkt TP

30y mon. policy 30y xmkt TP 10y dom TP 10y swap spread

30y dom TP 30y swap spread

Source: Bloomberg, Morgan Stanley Research. Note: Monetary policy: Source: Bloomberg, Morgan Stanley Research. Note: Monetary policy:

impact on 10y from changes in 2y1y with beta from regression of 10y impact on 30y from changes in 2y1y with beta from regression of 30y

swap vs 2y1y since 2007; term premium proxy calculated as residual of swap vs 2y1y since 2007; term premium proxy calculated as residual of

10y swap regression against 2y1y since 2007; term premium = domestic 30y swap regression against 2y1y since 2007; term premium = domestic

term premium + international term premium, where international term term premium + international term premium, where international term

premium is calculated based on 10y euro-US spread regression against premium is calculated based on 30y euro-US spread regression against

2y1y spreads since 2007. 2y1y spreads since 2007.

We decompose Bund yield changes in four drivers: 1) money market expectations, 2) domestic term premium, 3)

international term premium, 4) swap spread