By Stefano Rebaudo
March 2 (Reuters) - Euro zone government bond yields
rose to fresh multi-year highs ahead of the bloc's inflation
data on Thursday after single countries' numbers showed earlier
this week a more robust than expected rise in consumer prices.
A preliminary reading of harmonised euro zone inflation for
February is due at 1000 GMT on Thursday.
Data in the euro zone's biggest economies rose unexpectedly
this month, data showed on Tuesday and Wednesday, raising
expectations of European Central Bank rate hikes and challenging
the narrative of a rapid easing in price growth.
The Dutch statistics agency said on Thursday that inflation
in the Netherlands picked up again in February after four months
of deceleration.
Markets raised their expectations about the rate hiking path
with the December 2023 ECB euro short-term rate forward rising as high as 3.94%, implying expectations
for a depo rate at around 4.04% by year-end.
The European Central Bank's top three shareholders charted
different paths for interest rates on Wednesday in a preview of
the problematic debate awaiting the ECB in the coming weeks.
Investors seem to be more on the hawkish side as Francois
Villeroy de Galhau, a centrist, said the ECB should now become
"more gradual" in raising rates and close its hiking cycle by
September at the latest.
ECB President Christine Lagarde said on Thursday that
further interest rate hikes are "possible" after March,
depending on the incoming data.
Germany's 10-year government bond yield , the
bloc's benchmark, was up 4 basis points (bps) at 2.754% after
hitting its highest since July 2011 at 2.77%.
Yields on the 10-year French , Spanish , Portuguese and Irish bonds
were at their highest levels since mid-January 2012, January
2014, April 2017 and February 2014, respectively.
The German 2-year yield, most sensitive to changes in policy
rate expectations, rose 3.5 bps to 3.233% after hitting its
highest since October 2008 at 3.257%.
"The new multi-year highs in 5y5y (inflation forwards) above
2.5% highlight the market's shift away from pricing temporary
price shocks to pricing structurally higher inflation, leaving
the all-time highs from 2008/09 as the next target," said
Michael Leister, head of interest rates strategy at Commerzbank.
A key market gauge of euro zone long-term inflation
expectations rose as high as 2.5203% on Wednesday.
Italy's 10-year government bond yield hit a
fresh 2-month high at 4.645% and was last at 4.619%, up 4 bps.
The spread between Italian and German 10-year yields remained subdued at 186.1 bps.
(Reporting by Stefano Rebaudo, editing by Alexander Smith)
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