Euro zone yields rise as U.S. inflation dims Fed cut hopes

Euro zone bond yields rose after data showed U.S. inflation was stronger than expected in March, adding to signs that the Federal Reserve may leave interest rates higher for longer. Pricing has fallen from 95 bps at the end of March. Italy's 10-year yield, the benchmark for the euro zone periphery, was 7 bps higher at 3.782%.

Euro zone bond yields rose after data showed U.S. inflation was stronger than expected in March, adding to signs that the Federal Reserve may leave interest rates higher for longer. U.S. consumer price index (CPI) inflation stood at 0.4% month-on-month in March, the same as in February and above expectations of a 0.3% reading. Year-on-year inflation rose to 3.5%, from 3.2% the previous month.

Bond yields, which move inversely to prices, jumped in the U.S. and Europe. Germany's 10-year government bond yield , the euro area's benchmark, was up 5 basis points (bps) at 2.416%, having stood at 2.35% just before the data landed. It hit a three-week high of 2.457% on Monday before paring its gains. The 10-year U.S. Treasury yield was up 13 bps at 4.495%, its highest since November, from 4.346% before the figures.

Yields have risen this year as U.S. economic data has come in stronger than expected, causing investors to cut their bets on deep interest rate cuts from the Fed. Given the importance of the U.S. economy and the similar path of inflation across the two economic zones, euro zone bonds tend to track their U.S. peers. In recent weeks, however, U.S. yields have risen more, reflecting the stronger economy.

Traders were also focused on the European Central Bank, which is widely expected to keep rates unchanged at its policy meeting on Thursday. They will look for any hints about the speed of future rate cuts after an expected first move in June. Money markets are currently pricing in 80 bps of ECB rate cuts in 2024, down from 87 bps before the U.S. data. Pricing has fallen from 95 bps at the end of March.

Italy's 10-year yield, the benchmark for the euro zone periphery, was 7 bps higher at 3.782%. The spread between Italian and German 10-year yields – a gauge of risk premium investors ask to hold bonds of the euro area's most indebted countries – widened to 135 bps.

It reached 144.5 bps early this month, its highest level since early March, after hitting 115.4 in mid-March, its lowest in over 24 months.

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