The yield on Germany's euro zone benchmark 10-year bond , which moves inversely to the price, hit its highest level since August 2011 on Wednesday at 2.57%. On Thursday it was last down 3 basis points (bps) at 2.484%. Italian bond yields fell more sharply, with the 10-year yield down 8 bps to 4.379%.
The spread between Italian and German 10-year yields narrowed to 188 bps after hitting its widest level in three weeks on Wednesday at 196 bps.
"In terms of data the important number will be tomorrow's PCE for January, but so far the bond sell-off seems to have run out of steam," said Antoine Bouvet, senior rates strategist at Dutch bank ING, referring to U.S. personal consumption expenditure inflation. That is the Federal Reserve's preferred inflation gauge.
"At the (German) 10-year point we’ve failed twice to break above 2.56% and we were lacking a fresh hawkish catalyst for yields to continue rising," Bouvet added.
Data earlier in the day showed that euro zone inflation was only a touch higher than earlier estimated in January, confirming that price growth is now well past its peak. However, core inflation, which strips out volatile food and fuel products, accelerated to a record 5.3% from 5.2%. Initial data had shown a steady rate. Jussi Hiljanen, head of European rates strategy at SEB, said euro zone bond yields felt like they could be near their peak. "I think markets are undecided at these levels which means this might be a technical correction," he said.
Germany's 2-year yield , which is particularly
sensitive to changes in interest rate expectations, fell 1 bp to
2.906%.
It hit its highest level since 2008 on Wednesday at
2.971% and has risen over 50 bps since the middle of January.
Italy's 2-year yield was last down 5 bps at 3.516%. The European Central Bank has raised its main interest rates by 300 bps since July in an attempt to tame inflation. Money markets are pricing around another 130 bps increase by September. The minutes from the Fed's last policy meeting, released on Wednesday, indicated that curbing unacceptably high inflation would be the "key factor" in how much further U.S. rates need to rise, even as it hiked rates at a slower pace.
U.S. data released on Thursday showed that weekly jobless claims unexpectedly fell last week. U.S. GDP growth in the fourth quarter was also revised down to an annualised 2.7%, from 2.9%. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ The German yield curve has leapt ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Harry Robertson and Samuel Indyk; Editing by Kim Coghill, Mark Potter and John Stonestreet)
Samuel.Indyk@thomsonreuters.com))