The European Central Bank (ECB) has already raised rates to 2.5% from -0.5% in July 2022. The Fed has hiked rates to a range of 4.5% to 4.75%, from 0% to 0.25% in March 2022. Bundesbank President and ECB official Joachim Nagel said on Friday that the ECB may still need to raise interest rates significantly beyond March if underlying price growth remains too high. The German 10-year government bond yield rose 6 bps to 2.539%, not far off the more than 11-year high of 2.57% touched on Wednesday. That sent the German yield curve, as measured by the gap between the 2-year and 10-year yields , to its deepest inversion since 1992. Italy's 10-year government bond yield was last up 7 bps to 4.44%, with the spread between Italian and German 10-year yields narrowing slightly to 189 bps. Markets are also bracing for another data-heavy week, with a flash estimate for the consumer price index in the spotlight. A market gauge of long-term euro zone inflation expectations rose to a new nine-month high of more than 2.47% on Friday after the U.S. data. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Short euro yields Short-dated euro zone bond yields ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Stefano Rebaudo and Harry Robertson, editing by Sharon Singleton, Kirsten Donovan and Diane Craft)
harry.robertson@thomsonreuters.com)) (Corrects paragraph 11 to say the Fed funds rate range is 4.5%
to 4.75%, not 4% to 4.75%)
By Stefano Rebaudo and Harry Robertson
Feb 24 (Reuters) - Euro zone government bond yields
rebounded to around their highest levels in more than a decade
on Friday after U.S. inflation data came in hotter than
expected.
The U.S. personal consumption expenditures price index rose
5.4% year-on-year in January, up from 5% in December.
Most worryingly for investors, the core inflation reading,
which strips out food and energy costs and is closely watched by
the Federal Reserve, unexpectedly rose to 4.7% from 4.4%.
Yields on shorter-dated bonds, which are highly sensitive to
interest rate expectations, soared after the data was released,
after falling earlier in the session. Yields move inversely to
prices.
Germany's 2-year bond yield , which is highly
sensitive to policy rate expectations, was last up 12 basis
points (bps) to 3.021%, its highest level since October 2008.
The 2-year Italian yield rose 15 bps to 3.658%,
its highest level in more than 10 years, as the European session
headed for its close.
Friday's figures added to the increasingly prevalent
narrative that economies and price pressures remain strong and
that central banks are far from finished hiking rates.
The U.S. data "is another sign that the Fed might have to
leave its policy rate higher for longer", said Paul Ashworth,
chief North America economist at consultancy Capital Economics.
In Europe, traders have been steadily revising up their
forecasts for the peak in European interest rates. It rose again
to around 3.8% on Friday after the U.S. data, according to
pricing in futures markets .
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.