LONDON – Euro zone bond yields steadied as a sell-off in US Treasuries that sent Germany and Italian yields to more than a decade high on Wednesday paused for breath, with European Central Bank policymakers suggesting the rate hike cycle is likely completed.
Stronger than expected US job openings data pointed to a still-tight labour market that could compel the Federal Reserve to raise interest rates next month and accelerated a global bond rout.
Policymakers ruling out interest rate cuts in the face of above-target inflation has also put upward pressure on euro zone yields this week.
On Wednesday, ECB governing council member Mario Centeno said that the central bank cycle of interest rate hikes has likely come to an end as inflation across the euro zone is retreating.
Cyprus Central Bank governor Constantinos Herodotou echoed that ECB monetary policy is being effective in reining in prices, while ECB vice-president Luis de Guindos said that a lot of the policy tightening has yet to hit the economy.
The German 10-year yield, the euro area’s benchmark, surged to a fresh 12-year high in earlier trading, and was last 2 basis points (bps) lower at 2.935 per cent.
Bond yields move inversely to prices.
Italy’s 10-year government bond yield, the benchmark for the euro area’s periphery, rose to an 11-year high, and was last down 2.3 bps at 4.898 per cent.
“I believe they (euro zone bond yields) are pushed higher by a spike in real yields on both sides of the Atlantic,” said Saxo Bank.senior fixed income strategist Althea Spinozzi.
The 30-year Treasury yield rose above 5 per cent for the first time since the early days of the global financial crisis in 2007. It was last 6.8 bps lower at 4.870 per cent.
The sharp rise in long-term rates suggests traders expect interest rates will remain higher for longer due to the continued resilience of the world’s largest economy, investors said.
Germany’s 30-year yield climbed to its highest since August 2011, Italy’s 30-year yield rose to a 10-year high.
Mr Vikram Aggarwal, sovereign bond fund manager at Jupiter, said he expects yields on longer-dated Treasuries will continue to rise amid a potential sharp rise in US government borrowing.
In Europe, Ms Spinozzi expects the sell-off to continue with Germany’s 10-year yield rising as high as 3.5 per cent.
With the ECB reiterating that it remains data-dependent, investors were closely watching euro zone retail sales data showing a much bigger-than-expected fall in August, pointing to weaker consumer demand.
Separate data showed on Wednesday that euro zone producer prices edged higher than expected month on month in August and plunged year on year on a sharp drop in energy prices. REUTERS
