Euro zone bond yields rise, British data reminds market of inflation stickiness
Updates at 1044 GMT
By Alun John
LONDON, May 22 (Reuters) -Euro zone bond yields rose on Wednesday after British data reminded investors of the stickiness of services inflation and reinforced expectations that central banks will be cautious when it comes to interest rate cuts.
The German 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, touched 2.556% in early trade, its highest in three weeks, and was last 2 basis points higher at 2.53%.
Eyes were on data out of Britain which showed consumer prices rose by an annual 2.3% last month, down sharply from a 3.2% increase in March, but above market expectations.
British services inflation was sticky, inching down to 5.9% from 6.0% in March, leading markets to push back their expectations for the first Bank of England rate cut.
Markets see a rate cut by the European Central Bank in June as all but certain, but their path after that is unclear, meaning investors are paying close attention to both European inflation data as well as that from around the world.
Market pricing currently indicates a further 25 bps ECB cut in the autumn and a chance of one more by year end.
"Persistence of services inflation is something we saw in Canada as well yesterday. An inflection point in monetary policy is coming but don't expect it to be an out and out easing cycle in G10," said Kenneth Broux head of corporate research, FX and rates at Societe Generale.
Canada's annual inflation rate slowed to a three-year low of 2.7% in April, though services prices rose 4.2% on an annual basis, Tuesday data showed, while the Reserve Bank of New Zealand, at its meeting earlier Wednesday, wrongfooted markets by warning that cuts were unlikely until far into 2025.
The U.S. Federal Reserve releases the minutes of its 1 May meeting later today, another piece of information from outside the bloc that euro zone rates investors will be watching.
Within the euro zone, Germany's Bundesbank on Wednesday warned that wages in Germany have been rising faster than expected, casting some doubt on expectations for a continued fall in inflation.
Italy's 10-year yield IT10YT=RR was higher by 4 basis points at 3.84%, and the gap between Italian and German bunds DE10IT10=RR widened 1 basis point to 130 bps.
Germany's two-year bond yield DE2YT=RR, which is more sensitive to European Central Bank rate expectations, was 2 basis points higher at 3.01%.
Also notable for government bond investors, Japan's 10-year government bond yield rose to an 11-year high of 1% on Wednesday. JP/
Reporting by Alun John; Editing by Sharon Singleton and Hugh Lawson
Related Assets
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.
