Spain's consumer prices rose 6.1% year-on-year in February, a faster pace than the 5.9% during the 12 months to January and above the 5.7% expected by analysts polled by Reuters. Germany's 10-year government bond yield , the bloc's benchmark, rose to its highest level since July 2011 at 2.662%, up 7.5 bps. The December 2023 ECB euro short-term rate (ESTR) forward rose to 3.875%, implying a depo rate at 3.975% by year-end, from 3.775% on Thursday. The ESTR published by the ECB reflects banks' wholesale euro unsecured overnight borrowing costs. It is usually around 10 bps below the deposit rate. "Inflation data are still leading markets," said Massimiliano Maxia, a senior fixed-income specialist at Allianz Global Investors. "We were already forecasting a 50 bps rate hike in March that would drive the depo rate to 3%, then further 50 bps or more likely 75 bps are seen by year-end, of course depending on the economic data. It makes sense to expect a depo rate peaking at 3.75-4%," he added. ECB policymakers have been fighting against expectations for a shorter rate hiking path since the beginning of February, as markets expected a pause in the tightening cycle. Chief Economist Philip Lane told Reuters in an interview on Friday the central bank will be slow to lower rates "until we have very strong evidence – not just in the forecast but also in our ongoing assessment of underlying inflation – that we are returning inflation to target".
Croatian central bank chief Boris Vujcic said on Thursday the ECB must push on with monetary tightening while price pressures endure.
The German yield curve deepened its inversion showing markets expect rates to fall in the longer term after the ECB managed to tame inflation. The gap between German 2-year and 10-year yields dropped as low as -50.2 bps, its lowest level since October 1992. Italy's 10-year bond yield rose 11.5 bps to 4.547 after hitting its highest level since Jan. 3 at 4.549%, while the spread between Italian and German 10-year yields remained below 190 bps at 187 bps. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ESTRfwd ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Stefano Rebaudo, editing by Emelia Sithole-Matarise)
