Euro zone bond yields at one-month high after German inflation data
Updates throughout, adds analyst comments
By Joice Alves
LONDON, May 29 (Reuters) -Euro zone bond yields surged to their highest in over a month on Wednesday after data showed inflation rising in three German states, but investors awaited the national figure for further clues on the European Central Bank's rate outlook.
Inflation in three German states inched up in May, although price growth did slow in one state.
The inflation rate in North Rhine-Westphalia, Germany's most populous state, rose to 2.5% year-on-year in May from 2.3% in April.
Economists will pay close attention to the national data due at 1200 GMT for clues on how much the ECB will cut rates this year. An ECB rate cut on June 6 appears certain, according to all 82 economists polled by Reuters, a majority of whom predicted two further reductions in September and December.
Germany publishes its figures before euro zone inflation and the U.S. personal consumption expenditure data which are due to be released on Friday.
The German 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, rose 4.8 basis points (bps) to 2.63% for its highest level since April 25.
Franziska Palmas, senior Europe economist at Capital Economics, said a weighted average of inflation figures for the six major German states suggests that German headline HICP will likely rise to 2.5% in May from 2.4% in April.
A separate Reuters poll sees inflation in Germany rising to 2.7% in May.
"CPI inflation data published by the major German states this morning suggest that both German and euro-zone HICP inflation may come in a bit lower than expected," Palmas said.
"The ECB has been paying particular attention to services inflation, but we don’t think the rise in May will deter it from cutting rates next week given that it is driven by temporary factors. Nevertheless, a pause in July now seems more likely," she added.
Money market traders are almost certain that the ECB will cut rates next week and are pricing in around 60 bps of monetary easing by year-end EURESTECBM5X6=ICAP.
Italy's 10-year yield IT10YT=RR also touched a more than one-month high and was last up 4.2 bps at 3.94% while the gap between Italian and German bunds DE10IT10=RR was at 130 bps.
Germany's two-year bond yield DE2YT=RR, which is more sensitive to ECB rate expectations, was 1.9 bps higher at 3.07%.
The spread between U.S. 10-year Treasuries and German bunds DE10US10=RR narrowed by 1.6 points to 193 bps, having briefly surged to 196 bps, its highest since mid May earlier in the day.
Reporting by Joice Alves
Editing by David Goodman and Ana Nicolaci da Costa
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
