German 10-year Bund yield hits 2-week high before U.S. data

Citi analysts recently said that, given the ECB's meeting-by-meeting approach, the magnitude of this week’s rate hike would not carry much information for the subsequent path. Germany's 10-year government bond yield, the benchmark for the bloc, rose 1 bp to 1.942%, after hitting its highest level since Nov. 28 at 1.986%.

Euro zone borrowing costs edged higher on Tuesday, with the benchmark 10-year Bund yield hitting a 2-week high, ahead of U.S. inflation data that could affect the Federal Reserve's monetary tightening path. Analysts said the U.S. data might turn out more crucial for markets than central bank meetings and supply announcements expected in the coming days. Commerzbank analysts noted that Germany's Finance Agency will announce the issuance calendar for 2023 on Wednesday.

The Fed and the European Central Bank (ECB) are expected to raise rates by 50 basis points (bps) on Wednesday and Thursday, respectively, slowing down from consecutive 75 bps increases. Citi analysts recently said that, given the ECB's meeting-by-meeting approach, the magnitude of this week’s rate hike would not carry much information for the subsequent path.

Germany's 10-year government bond yield, the benchmark for the bloc, rose 1 bp to 1.942%, after hitting its highest level since Nov. 28 at 1.986%. "A (U.S. inflation) core monthly print at 0.3% could take the edge off (Fed chair Jerome) Powell’s hawkish tone, but we think it is a higher reading that would have the most market impact, as it would wrong-foot almost two months’ worth of bond rally," ING analysts said.

"The increase in yields already observed on Friday and yesterday might somewhat limit the upward move if CPI declines by less than expected," Unicredit analysts said. U.S. producer prices increased a bit more than expected in November, but the underlying trend in inflation is moderating.

Meanwhile, German investor sentiment continued on its recovery path in December, as financial market experts broadly expected a decline in inflation in the coming months. Germany's consumer prices, harmonised to compare with other European countries, were 11.3% higher year-on-year in November, confirming preliminary figures.

Italy's 10-year yield rose 1 bp to 3.83%, after reaching its highest since Nov. 30 at 3.872%. The spread between Italian and German 10-year government bond yields was at 188 bps. Germany's yield curve was inverted, with the gap between the 2-year and 10-year yields at -25.5 bps after hitting -30.1 bps early in the session. On Dec. 1, it reached -31.1 bps, the widest negative gap since October 1992.

An inversion suggests that investors expect the ECB to pause its hikes or even cut rates next year as inflation will start declining faster than expected or because the central bank wants to avoid deepening a recession.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)