Euro zone yields hold near recent highs as investors brace for inflation data


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LONDON — Euro zone government bond yields were little changed on Tuesday as traders awaited the latest policy signals and this week’s inflation data, following a start to the week in which yields soared after a round of policymaker warnings about inflation.

Bond yields jumped on Monday when money markets ramped up their bets to a two-thirds chance of the European Central Bank delivering a 75 basis point hike next month.

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Particularly in focus were comments made by ECB board member Isabel Schnabel at the weekend. She warned of rising risks that long-term inflation expectations could “de-anchor” from the bank’s 2% target and said surveys suggested that inflation was denting public trust in central banks.

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Other officials said frontloading hikes would be reasonable and that the neutral rate, estimated around 1.5%, should be reached before year-end or first quarter 2023.

German bond yields rose as much as between 15 and 20 basis points on Monday to multi-month highs.

Euro zone flash inflation numbers for August are due on Wednesday, with some country-specific numbers out on Tuesday from Germany and Spain.

Economists expect the August reading for the region to rise to another record-breaking 9% from 8.9% in July.

“Investor focus will be on inflation data from Germany and Spain. Higher-than-expected figures would probably put further pressure on EGBs (eurozone government bonds),” UniCredit analysts said.

Mizuho analysts noted the consensus for Tuesday’s inflation numbers was for a month-on-month rise in Spain but a fall in Germany. “Either way, rising European power prices suggest that peak inflation is still some way off,” they added, suggesting clients sell any strength seen in euro zone bonds.

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On Tuesday, Germany’s 10-year yield traded at 1.496% , unchanged on the day but close to the two-month high reached on Monday of 1.548%.

The two-year bond yield, sensitive to interest rate expectations, stood at 1.098%, also little moved on the day but near Monday’s high.

Other bond yields were slightly lower on Tuesday, with French and Spanish yields falling between 1 and 3 basis points and Italian yields unchanged.

Tuesday also sees economic sentiment data for the euro area in August released at 0900 GMT, while a final reading for the same month for consumer confidence is due at the same time. (Reporting by Tommy Reggiori Wilkes Editing by Gareth Jones)


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