Benchmark Bund yield hits fresh 12-year high after Fed, BoE

Euro zone borrowing costs rose on Thursday, with the benchmark Bund yield hitting a fresh 12-year high, as the Federal Reserve and the Bank of England (BoE) kept rates unchanged but flagged more hikes could come to fight inflation.

Euro zone borrowing costs rose on Thursday, with the benchmark Bund yield hitting a fresh 12-year high, as the Federal Reserve and the Bank of England (BoE) kept rates unchanged but flagged more hikes could come to fight inflation. The European Central Bank's policymakers kept warning of the risk of an additional rate hike before cuts come onto the agenda.

The BoE held the interest rate at 5.25% as the British economy slowed, but it said it was not taking a recent fall in inflation for granted. It was the first time since December 2021 that the central bank did not increase borrowing costs. In a similar move on Wednesday, the Fed held its benchmark overnight interest rate but it may still be lifted one more time this year to a peak 5.50%-5.75% range, according to updated quarterly projections released by the U.S. central bank, and rates will be kept significantly tighter through 2024 than previously expected.

Germany's 10-year government bond yield reached 2.779%, its highest level since July 2011. It was up 3 basis points (bps) at 2.73% by 1519 GMT. The German 2-year bond yield, which is sensitive to changes in policy rate expectations, was 0.5 bps higher at 3.26%, after hitting its highest since mid-July.

Italy's 10-year government bond yield was last up 8 bps at 4.54%. "We still think that the Fed is done with rate hikes. The bar for another hike in November is high and data would have to surprise significantly to the upside for the Fed to hike again," said Mohit Kumar, rate strategist at Jefferies.

"Our pecking order of duration preference would be Gilts, Bunds and (U.S. Treasuries) as in the first two cases, there are clearer indications that the central banks are done," he added. The European Central Bank raised interest rates last week and will next set interest rates in late October. Investors think borrowing costs will stay at 4%, according to pricing in derivatives markets.

The yield on Britain's benchmark 10-year bond wavered after the BoE decision and was last roughly where it was before the BoE's statement, up 8 bps at 4.30%. CENTRAL BANKS IN ACTION

In a day packed with central banks' decisions, a rate-setting meeting in Switzerland left the Swiss 10-year bond yield volatile. It reversed course and was last flat at 1.09% after briefly surging around 20 bps to 1.26%, a 5-month high, after the Swiss National Bank (SNB) held its policy interest rate unchanged at 1.75%. It paused rate hikes for the first time since it started raising cost of borrowing in March 2022.

Sweden's and Norway's central banks raised their key policy rate by a quarter percentage point as expected on Thursday to 4.00% and 4.25%, respectively.

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