Morgan Stanley: The European Central Bank has room for further rate cuts; German bond yields may reach 2.45% by the end of next year.

Morgan Stanley expects the European Central Bank (ECB) to further cut interest rates in the first half of next year. By mid-next year, the policy rate will be lowered from the current 2.00% to 1.50% and remain at that level. Strategists noted, "Weak economic growth, lower-than-expected inflation, and limited fiscal stimulus are all driving further easing by the ECB." Against this backdrop, Morgan Stanley expects the 10-year German bond yield to be around 2.45% by the end of 2026. According to LSEG data, the money market anticipates the ECB will cut rates by nearly 10 basis points in June 2026.