Eurozone bond yields rise, focus on UK gilts, inflation data – Reuters

Sept 29 (Reuters) – Eurozone government bond yields rose on Thursday as German data shifted market focus to soaring inflation, while gilt investors resumed selling after that the Bank of England (BoE) stepped in to quell a storm the day before.

Eurozone yields plunged on Wednesday, following moves in Britain’s gilts as the BoE announced the immediate launch of an emergency bond-buying program to prevent the market turmoil from spreading. Read more

Analysts were cautious about the BoE’s moves, arguing that to restore market confidence, the UK Treasury must announce a credible plan to bring debt under control.

The yield on Germany’s 10-year government bonds, the bloc’s benchmark, rose 11 basis points (bps) to 2.25%. It hit its highest since December 2011 at 2.35% on Wednesday.

The yield on the UK 10-year gilt rose 16 basis points to 4.16%, after falling nearly 50 basis points the day before.

“Markets calmed down after the BoE’s intervention. However, the BoE’s decision, without a change in political direction, may not be a turning point in itself,” said Chris Attfield, European rates strategist at HSBC.

German inflation likely rose significantly in September based on initial data from its most populous state, which saw the biggest jump since the early 1950s, according to its statistics office. [nL8N3101ZE]

Germany’s Federal Statistical Office will release a flash estimate of national data for September later on Thursday.

“If (the figures for North Rhine-Westphalia are) reflected by data from other federal states, which are due to be released in the morning, consumer prices could rise by almost 10% year-on-year. ‘other,’ UniCredit analysts said in a note.

“We expect inflation rates to remain exceptionally high until the end of the year before gradually declining.”

Analysts polled by Reuters expect EU harmonized consumer price (HICP) data, which is due on Friday, to have risen 10% in September.

European Central Bank policymakers continued to line up behind another sharp interest rate hike as inflation is set to hit a new high, but differed on whether it was time to think about drain liquidity from the economy. [nL1N3100F2]

“Markets are pricing a strong likelihood of two 75 basis point ECB rate hikes by the end of the year, and we’re inclined to agree with that. The hawks are in control, and the real question is what happens next year,” HSBC’s Attfield said. .

Italy’s 10-year government bond yield rose 9 basis points to 4.67%, after hitting its highest level since February 2013 at 4.927% the previous day.

The spread between Italian and German 10-year rates was 242 basis points.

Analysts said that while Italian policy does not affect the bond market much, the main concerns for Italian bond investors are a possible quantitative tightening by the ECB and a further rise in inflation in the euro zone.

Reporting by Stefano Rebaudo, editing by Andrew Heavens

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