(Updates prices to close)
By Stefano Rebaudo
Feb 22 (Reuters) - Euro zone government bond yields hit
their highest levels in over a decade on Wednesday on
expectations for further monetary tightening as investors waited
for minutes of the latest Federal Reserve policy meeting.
Recent data from the United States and euro area has shown
surprising resilience, while the growth outlook in China is more
robust and less uncertain than expected just a few months ago.
At the same time, central banks' campaign against inflation
has a way to go as consumer spending on services and tight
labour markets keep price pressures high.
Germany's 10-year yield , the benchmark for the
single currency bloc, was down 2 basis points (bps) to 2.515%,
after hitting its highest since August 2011 at 2.57%.
The Federal Open Market Committee will issue minutes from
its Jan. 31-Feb. 1, 2023, meeting at 1900 GMT.
Euro area wages are catching up after rapid inflation eroded
their purchasing power, European Central Bank President
Christine Lagarde said, adding the central bank was monitoring
wage growth "very, very closely".
New Zealand's central bank raised interest rates by 50 basis
points to a more than 14-year high of 4.75% on Wednesday and
said it expected to keep tightening further.
"The ongoing rotation of consumer spending is fueling tight
labour markets and hot services inflation," Citi analysts, led
by Nathan Sheets, said.
"By our reckoning, global headline inflation is still
running somewhere in the 6-7% range, well above central bank
targets," they added.
German business morale improved in February for the
fourth-consecutive month, adding to signs that Europe's largest
economy is recovering despite the energy crisis and high
inflation.
Germany's 2-year bond yield , the most sensitive
to policy rate expectations, briefly hit a fresh 14-year high of
2.971%. It was last down 4 bps at 2.914%.
Italy's 2-year yield set a new 10-1/2 year high
of 3.629%, and was last down 1 bp at 3.566%.
"Markets and probably also the ECB are underestimating the
delayed impact on the economy of the unprecedented monetary
tightening we have seen," said Guy Miller, chief market
strategist and head of macroeconomics at Zurich Insurance.
"We see the ECB raising by 50 bps in March and 25 bps in
May. I don't think it can go any further," he added.
Deutsche Bank has lifted its forecast for where the European
Central Bank's key rate will rise to in this tightening cycle to
3.75% from 3.25%.
The business climate in France improved slightly in February
compared to January, while German consumer prices rose by 9.2%
in January, confirming preliminary data.
Italy's 10-year yield was down 1 bp at 4.463%
after hitting a fresh six-week high of 4.537% on Tuesday. The
spread between Italian and German 10-year yields was at 194 bps, its widest level since Feb 2.
(Reporting by Stefano Rebaudo; Editing by Christina Fincher,
Kirsten Donovan and Sharon Singleton)
