Rate-hike path pushes euro zone bond yields higher in choppy market
Euro zone bond yields resumed their rise in choppy trading on Friday as central bank tightening remained the main investor focus, but sharp falls earlier this week set Germany's benchmark 10-year yield for its biggest weekly fall in six weeks.
Euro zone bond yields resumed their rise in choppy trading on Friday as central bank tightening remained the main investor focus, but sharp falls earlier this week set Germany's benchmark 10-year yield for its biggest weekly fall in six weeks. U.S. Treasury and euro zone bond yields have risen in January on expectations that U.S. interest rates could rise as soon as March, leaving investors preparing for tighter monetary conditions to tackle booming inflation.
After a fall in euro zone bond yields on Wednesday and Thursday briefly interrupted that pattern, bond yields were back on the rise on Friday. Among other factors, Bank of Japan policymakers are debating how soon they can start telegraphing an eventual interest rate hike, which could come even before inflation hits the bank's 2% target, sources said, emboldened by broadening price rises and a more hawkish Federal Reserve.
"It's definitely a factor that explains today' bloc's bond yields rise," Rainer Guntermann, rate strategist at Commerzbank, said referring to the Bank of Japan news. By 1130 GMT, Germany's 10-year yield, which moves inversely with its price, was up around 3 basis points (bps) at -0.061% . But it was still below the -0.014% it touched on Tuesday, when it approached positive yield territory for the first time since May 2019.
The sharp drop in yields on Wednesday and Thursday still Germany's 10-year yield on course for the biggest weekly drop in six weeks, down 3 bps this week. "0% in the German Bund yield and 2% in the U.S. (10-year yield) are still hard thresholds to pass and there is a resistance to push yields higher, especially when they have gone up fast," said Pictet Wealth Management strategist Frederik Ducrozet.
However, the bounce back of bonds seen on Thursday could find further support from today's data, where U.S. retail sales are seen coming in softer, according to ING strategists. U.S. December retail sales, due later in the day, are expected to be unchanged, according to a Reuters poll.
Investors will turn their focus later on Friday to a speech by ECB President Christine Lagarde. ECB Vice President Luis de Guindos on Thursday joined those who believe the euro zone's inflation spike was not as transitory as earlier thought.
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)