"We wait for numbers for other German states and other euro area countries, but yes, this first data today (NRW inflation) is a good excuse to buy some bonds," Antoine Bouvet, head of European rates Strategy at ING. "After a regional banking turmoil in the U.S., fears of a credit crunch still weigh on the fixed income market capping rates," he added. Euro area borrowing costs rose in the last few sessions, with market bets on the European Central Bank's rate increases stabilising after strong volatility. The September 2023 ECB euro short-term rate forward (ESTR) was on Thursday at around 3.3%, implying market expectations for the deposit facility rate to peak at 3.4%. November 2023 forward peaked at about 4% on March 8. Some market participants believed a line had been drawn under systemic banking worries, but they argued caution was needed as turns in market sentiment in recent weeks had been sudden and violent. "Central banks managed to convince markets to disaggregate banks' potential liquidity problems from solvency issues and that they have the tools to tackle the risks of a banking crisis,” said Colin Graham, head of multi-asset strategies at Robeco. Analysts said a market stress indicator, such as the euro swap spread, was in the low part of the current range, ripe for a retracement through the levels prevailing in early March. The gap between two-year euro swap rates and two-year German bond yields was at 71 bps after peaking at around 90 bps a couple of weeks ago due to strong demand for safe-haven bonds. It was at about 60 before fears of a banking crisis started worrying financial markets. Italy's 10-year government bond yield dropped 5.5 bps to 4.08%, with the closely watched spread between German and Italian 10-year yields - a gauge of investor confidence in the more highly indebted countries of the euro zone – at 181 bps. (Reporting by Stefano Rebaudo, editing by Robert Birsel)
By Stefano Rebaudo
March 30 (Reuters) - Euro zone bond yields edged lower
on Thursday as the first data from Germany’s most populous state
of North Rhine Westphalia (NRW) showed inflation was likely to
cool off in March.
The federal statistics office will publish a flash estimate
for nationwide inflation at 1200 GMT, after data from NRW showed
a 6.9% rise versus analysts' nationwide consensus of 7.3%.
Markets await U.S. economic numbers, including the Federal
Reserve's most preferred inflation gauge, the Personal
Consumption Expenditure index (PCE).
The focus of investors shifted to inflation after a downward
repricing in expectations for the European Central Bank's policy
rates with fears of the economic impact of recent market turmoil
still weighing on financial markets.
Germany's 10-year government bond yield , the
bloc's benchmark, fell 6 basis points (bps) to 2.25%.
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