This week, the euro zone CPI index will be released。Eurozone CPI expected to fall to 3.1%, the lowest level in more than two years。

Excluding volatile factors such as energy and food, the core inflation figure is expected to be 4.2%。Viraj Patel, senior strategist at Vanda Research, said he did not rule out the possibility of core inflation returning to below 3% in the first quarter of 2024.。

Despite the slowdown in inflation, the eurozone economy has shown signs of weakness with interest rates running high。European Central Bank President Lagarde also issued a warning on the European economic outlook。And this weak economic data in Europe contrasts sharply with strong U.S. data, with the U.S. economy growing 4 percent in the third quarter..9%, the fastest growth rate since 2021。Traders still see a one-in-three chance the Fed will raise rates again by next January。

Brian Mangwiro, fund manager at Baring, said: "The growth differential between Europe and the US continues to support the overweight allocation of European sovereign bonds relative to the US.。Weak European growth and inflation outlook provides a better support for bond investors。"

Money managers at JPMorgan Private Bank and BlackRock see stronger case for buying Eurobonds as economy weakens。

Data on private sector activity, disclosed last week, remained weak, suggesting the region could slip into recession.。Money market traders say all this means there is little chance of another ECB rate hike。

Samuel Zief, head of global foreign exchange strategy at JPMorgan Private Bank, said, "With every data release, the case for the ECB's gradual shift to dovish is strengthening.。"

The European Central Bank halted a 14-month rate hike cycle last week, boosting confidence among fixed-income investors.。It has also sparked speculation that the ECB will turn the pigeon, and when the ECB will start cutting interest rates has also become the focus of the market.。Money markets are now predicting that the ECB will start cutting interest rates by 25 basis points in June next year.。and is expected to cut rates by a total of about 80 basis points by 2024。

Patel believes that if the ECB cuts interest rates earlier and more sharply, the spread between the Italian / German 10-year bond yield spread (BTP spread) could rise sharply, quickly exceeding current levels。

On Monday (October 30), German 10-year bond yields, the benchmark for euro zone sovereign bond yields, fell 6 basis points to 2.782%。The yield touched 3 in early October..024%, the highest level in 12 years。Italian 10-year bond yields, the benchmark for the euro zone's periphery, fell 7.5 BPS to 4.73%。The spread between the Italian / German 10-year bond yield spread also fell to 194 basis points, the narrowest level in a week.。

Some argue that the ECB's 2 per cent inflation target is likely to be difficult to achieve if the economy does not cool further, coupled with a weak labour market.。

Konstantin Veit, portfolio manager at bond giant Pacific Investment Management, said the market may actually be too optimistic about the approach of a rate cut。The spillover effects of weakness in the U.S. Treasury market also remain a major headwind.。Weakness in the U.S. Treasury market has been the main driver of recent gains in European bond yields.。

Ann-Katrin Petersen, senior investment strategist at BlackRock Investment Institute, believes the threshold for the ECB to cut rates is higher than the threshold for another rate hike。Nevertheless, Lagarde's efforts to downplay the outlook for tightening balance sheet policy (reducing bond holdings more quickly) have increased the attractiveness of investors to high-quality government debt, Petersen said.。

Petersen said: "As market pricing reflects the ECB policy rate remaining high for an extended period of time, we tactically increased our holdings of longer-term eurozone government bonds even as economic growth deteriorated.。"