German, most other euro zone bond yields hit multi-month highs

Most euro zone bond yields rose to multi-month highs on Monday with investors betting on a brighter economic outlook and a pick-up in inflation as oil prices rose to their highest level in over a year.

Most euro zone bond yields rose to multi-month highs on Monday with investors betting on a brighter economic outlook and a pick-up in inflation as oil prices rose to their highest level in over a year. Ten-year bond yields in Germany, France and the Netherlands all rose to their highest since early September, while Germany's 30-year bond yield rose to an eight-month high.

A selloff in major bond markets has gathered pace in recent sessions, as coronavirus vaccine rollouts and U.S. fiscal stimulus boosts expectations of a strong economic recovery. Benchmark U.S. Treasury yields rose to their highest levels since March on Friday, pushing prices down. This selloff, along with a rise in Brent crude oil prices to highs above $63 a barrel weighed on euro zone debt markets on Monday.

Germany's benchmark 10-year Bund yield rose 4 basis points to a 5-1/2 month high at -0.387%. Its 30-year bond yield, up 20 bps so far this month, rose to an eight-month high at almost 0.13% - having traded in negative yield territory just over a week ago.

Across the euro area, long-dated bond yields in higher-rated markets such as the Netherlands and France were 4-5 bps points higher on the day. "The reflation sentiment remains alive and kicking, although with chances for near-term consolidation in Bunds following the latest sell-off," said Commerzbank strategist Rainer Guntermann.

With U.S. bond markets closed for a holiday and parts of Asia closed for the Lunar New Year, trade across financial markets was generally subdued. Italian bonds continue to outperform euro zone peers but their yields also edged higher on Monday, with Italy's 10-year bond yield up 2 bps on the day at 0.51% - still keeping last week's record lows in sight.

Mario Draghi, the former head of the European Central Bank, was sworn in as Italian prime minister on Saturday to lead a unity government that has to steer the country out of the coronavirus crisis and an economic slump. Politics was also in focus in Spain, where separatist parties looked set to jointly win a majority of seats in Catalonia's regional parliament. The election was viewed as a test of the strength of the region's pro-independence movement in an era now dominated by the pandemic.

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