(Updates prices)
By Harry Robertson
LONDON, Feb 9 (Reuters) - Euro zone government bond
yields fell on Thursday after four days of increases as cooler
German inflation data tempered investor expectations for euro
zone interest rates to rise much further.
The yield on Germany's 10-year government bond ,
the benchmark for the euro zone, hit a session low of 2.256%
before edging above that. It was last down 5 basis points at
2.31%.
Data on Thursday showed German consumer prices, harmonised
to compare with other European Union countries, rose 9.2% on the
year in January, compared with a rise of 9.6% in December and
below expectations.
The narrative that the European Central Bank (ECB) might
limit its rate increases is taking hold again, said Piet Haines
Christiansen, fixed income strategist at Danske Bank.
Yields, which move inversely to prices, dropped after rising
for four sessions, in spite of a warning from ECB officials that
interest rates will have to climb considerably higher.
The German data gave bonds an excuse to rise following
recent weakness, said Pooja Kumra, senior European and UK Rates
strategist at TD Securities.
"Focus still remains on how sticky core inflation will be in
coming weeks. Markets are underestimating how sticky inflation
can be, especially given the fact that the ECB is not changing
their rhetoric that much."
Euro zone core inflation, which strips out volatile energy,
food, alcohol and tobacco prices, remained at a record high of
5.2% in January.
"What we have been seeing over the last two weeks is
basically markets first overreacting post central bank meetings
and now we are trying to undo some of those moves as well,"
Kumra said, adding that she expects range-bound trading till the
March central bank meetings.
The ECB raised its benchmark rate by 50 bps to 2.5% last
week, and signalled it was not finished. Yet some ECB officials
have pushed back hard against the idea that they're nearly done.
ECB Vice-President Luis de Guindos said on Wednesday markets
could be too optimistic about inflation.
Italy's 10-year yield , seen as a benchmark for
so-called periphery countries, fell 10 bps to 4.138% on
Thursday. That narrowed the closely watched gap between Germany
and Italy's 10-year yields to 181.5 bps.
Euro zone yields have fallen sharply since hitting
multi-year highs in 2022, with a drop in energy prices easing
some of the pressure on the ECB to keep raising rates.
Germany's 10-year yield is now well below late December's
11-year high of 2.569%.
Germany's 2-year bond yield , which is highly
sensitive to interest rate expectations, fell 2 bps to 2.688%.
They had jumped in the previous session after the ECB said it
would cut the interest rate it pays governments on deposits.
Italy's 2-year yield was down 6.2 bps at 3.20%.
The next big data point for global markets comes on Tuesday
with the release of U.S. consumer price index inflation figures.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
German 10-year yield ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Harry Robertson, Amanda Cooper and Susan Mathew;
Editing by Arun Koyyur, Mark Heinrich and Shounak Dasgupta)
amanda.cooper@thomsonreuters.com))
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.