LONDON, Oct. 18 (Reuters) – Eurozone bond yields rose on Monday as a global reassessment of interest rate expectations pushed borrowing costs in the common currency bloc to recent multi-month highs . Recent comments from European Central Bank officials, including ECB chief Christine Lagarde, have allayed concerns in debt markets that the central bank is likely to tighten policy soon in the face of higher inflation.
But a hawkish move from other major central banks such as the U.S. Federal Reserve and the Bank of England, prompting investors to increase bets for anticipated rate hikes continues to dominate market moves and fuel corporate bonds. the eurozone, where yields rose after falling for the first time in eight weeks last week.
Money markets are now fully integrating a 10 basis point rate hike from the ECB in October 2022, a move that analysts say is unwarranted given the ECB’s inflation projections.
Bank of England Governor Andrew Bailey turned the corner on the hawkish movement on Sunday when he said the UK central bank was preparing to hike rates for the first time since the onset of the coronavirus crisis as the risks of inflation increase. Yields on UK gilts have increased.
Eurozone bonds followed and Germany’s 10-year yield, the benchmark for the Eurozone, rose 2 basis points to -0.147% at 3:19 p.m. GMT, rising to its highest since May reached the last week at -0.085%.
The German five-year bond yield hit its highest level since March 2020 at -0.445% and last rose nearly 6 basis points in the biggest daily yield rise since February this year.
“Bunds are likely to remain torn between the ECB’s calming comments and the ongoing bearish adjustments in the US and UK,” said Rainer Guntermann, rate strategist at Commerzbank.
Italian 10-year government bond yields rose more than 3 basis points to 0.9%, after hitting their highest since late May at 0.954%. The spread they are paying against their German counterparts has reached its highest level in 10 days at 106 basis points.
Market indicators of inflation expectations also rose, with a key euro area metric reaching 1.9122%, the highest since September 2014.
The Financial Times reported that the ECB is expected to discuss increasing its purchases of supranational debt – which would include debt that the European Union issues to support its coronavirus recovery fund of up to € 800 billion.
Nonetheless, bond yields from the EU and the European Investment Bank – the bloc’s other key supranational borrower – were mostly higher that day, in line with movements in the government bond market. .
Rising commodity prices and supply disruptions driving inflation in the euro area are transient but could last until next year, ECB policymaker and bank governor said on Monday Italian power station Ignazio Visco.
Reporting by Dhara Ranasinghe, Saikat Chatterjee and Yoruk Bahceli Editing by Andrew Heavens