Euro zone yields drift lower as traders wait for US inflation data
Germany's 10 year yield dipped 2 basis points (bps) to 2.62%, just off a four-month top of 2.679% hit Monday. Wednesday's move left the euro zone benchmark basically flat on the week so far, a calmer few days after a 24-bps increase the previous week.
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BERLIN :Euro zone bond yields wobbled lower on Wednesday, drifting around their recent highs ahead of U.S. inflation data due later in the day that could set the tone for markets in the coming weeks.
Germany's 10 year yield dipped 2 basis points (bps) to 2.62%, just off a four-month top of 2.679% hit Monday. Wednesday's move left the euro zone benchmark basically flat on the week so far, a calmer few days after a 24-bps increase the previous week.
Last week, economic data, particularly in the United States, caused a sell off in government bonds on both sides of the Atlantic as investors accepted central banks will keep rates higher for longer. Bond yields move inversely to prices and the relentless pace of global central bank rate hikes has hurt bond prices in most developed markets.
The United States will remain the focus for global markets on Wednesday with the release of CPI data that will help guide Fed interest rate policy. Markets are expecting the headline year-on-year figure to cool towards 3%, not an enormous distance from the Fed's 2% target though core and month-on-month readings are expected to temper excitement.
U.S. Treasury yields were a touch lower on Wednesday, with the U.S. 10 year yield down 3bps at 3.95%. "Ahead of a busy Northern American calendar, this morning’s list of European events is rather thin," said ING analysts in a morning note.
On the agenda was Spanish final inflation data, which confirmed the earlier flash estimate that Spanish consumer prices rose 1.9% in the 12 months to June, the smallest increase since the year to March 2021. A speech by Bank of England governor Andrew Bailey was on the watch list as well, though this will be about financial stability so may have little impact on expectations for monetary policy.
Italy's 10 year yield was near flat on the week so far, dipping 4 bps on Wednesday to 4.38%, leaving the closely watched spread between Italian and German 10 year borrowing costs at 174 bps, around its widest in a month. Nor was there much excitement at the shorter end of the curve. Italy's two year yield was flat at 3.99% and Germany's two year yield fell 2 bps to 3.34%.
