By Harry Robertson
LONDON, March 23 (Reuters) - Euro zone government bond
yields fell on Thursday after the U.S. Federal Reserve raised
interest rates by 25 basis points, but signalled that they are
unlikely to climb much higher, given the turmoil in global
banking.
The Fed raised rates to a 4.75% to 5% range on Wednesday.
Accompanying projections showed most officials expect rates to
peak at 5% to 5.25% and to end 2024 considerably lower.
Germany's 2-year yield , which is highly sensitive
to expectations for European Central Bank policy, fell more than
12 bps in early European trading to 2.624%. It was last 10 bps
lower at 2.606%.
"Bond yields in Europe are falling in sympathy with their
U.S. peers after the Fed dropped strong hints that we are
nearing the end of its hiking cycle," said Antoine Bouvet,
senior rates strategist at Dutch bank ING.
"This isn't so sure for the ECB but markets are, rightly to
an extent, trading like there is a strong read across from Fed
to ECB policy."
The U.S. 2-year yield was down 2 bps to 3.963%,
having dropped 20 bps on Wednesday. Yields move inversely to
prices.
Germany's 10-year bond yield , seen as a
benchmark for the bloc, fell 5 bps to 2.281%. It stood at an
11-year high of 2.77% at the start of March.
Italy's equivalent yield was down 5 bps to
4.125%. That took the closely watched gap between German and
Italian 10-year borrowing costs to 183 bps.
Bond yields have swung wildly - although the overall
direction has been down - over the last two weeks as cracks have
emerged in the global banking system.
The collapse of U.S. lenders Silicon Valley Bank and
Signature Bank shocked markets earlier this month, only to be
followed by UBS' emergency takeover of its ailing rival Credit
Suisse in Europe.
Fed Chair Jerome Powell said on Wednesday that stresses in
the banking sector could reduce lending and have a significant
impact on the U.S. economy, reducing the need for the central
bank to raise rates to tame inflation.
On Thursday, the Swiss National Bank also cut through the
banking turmoil to raise interest rates by 50 bps, to 1.5%.
The Bank of England is due to set interest rates later in
the day. Traders expect a 25 bp hike - taking rates to 4.25% -
after data showed inflation unexpectedly jumped in February.
ECB policymakers on Wednesday said they saw few signs of any
crisis brewing in euro zone banks. The central bank last week
raised interest rates by 50 bps to 3%, despite the financial
turmoil.
Ignazio Visco, governor of the Bank of Italy, said the ECB
should be "very prudent" with monetary policy, saying it is
"crucial" to avoid a full-blown credit crunch.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Traders bet on Fed rate cut by year end The race to raise rates ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Harry Robertson; Editing by Alison Williams)
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.