German 10-year bond yield holds below -0.1% as inflation concerns ease

Euro zone government bond yields were steady on Friday, stabilising after the benchmark German Bund yield hit a two-year high on Thursday, but still on track for a weekly rise. U.S. and euro zone yields rose on Wednesday after higher-than-expected U.S. consumer price data stoked concerns about sustained inflation and a possible tightening of monetary policy, although reassuring comments from the U.S. Federal Reserve saw Treasury yields edge back on Thursday.

Euro zone government bond yields were steady on Friday, stabilising after the benchmark German Bund yield hit a two-year high on Thursday, but still on track for a weekly rise.

U.S. and euro zone yields rose on Wednesday after higher-than-expected U.S. consumer price data stoked concerns about sustained inflation and a possible tightening of monetary policy, although reassuring comments from the U.S. Federal Reserve saw Treasury yields edge back on Thursday. European Central Bank Governing Council member Yannis Stournaras said that despite signs that financial markets were predicting inflation, Europe is not facing the kind of inflation concerns seen in the United States and that current monetary policy is appropriate.

At 0740 GMT, Germany's 10-year yield was steady at -0.113% . It had risen above -0.1% on Thursday for the first time since May 2019 and was on track for its biggest weekly gain in three months. The 10-year U.S. Treasury yield was down one basis point at 1.6539%.

"The calmer market backdrop may extend through today's bridge day and possibly into next week as the market has made room for further near-term inflation surprises," Commerzbank rates strategist Rainer Guntermann wrote in a note to clients. "Yet, the global inflation theme seems to be a bigger one and is unlikely to go away swiftly. Thus, there is likely to be more upside pressure for bond yields and talk of 0% 10-year Bund yields looks set to intensify," he said.

Italy's 10-year yield rose to its highest since September 2020 in early trading, up 6 bps at 1.079%. Concerns about growing public debt and uncertainty about the timing of Italy's recovery plan continued to weigh on Italy's bond prices, which move inversely with yields.

European Central Bank minutes from the April meeting are due later in the day. "We would be surprised if it gives much information about how it regarded financial conditions at the time and thus allowed the market to draw conclusions about the future pace of purchases," wrote ING strategists in a note to clients.

"This being said, fewer direct references to the recovery and how it justifies higher rates could be taken by bonds as a confirmation of their tapering fear, and push EUR rates higher," they said. Also in focus are U.S. retail sales for April, due at 1230 GMT.

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