By Harry Robertson
LONDON, April 4 (Reuters) - Euro zone bond yields edged
higher on Tuesday as investor focus returned inflation and
European Central Bank rate hikes.
Investors are still analysing the potential impact of the
announcement from the OPEC+ group of oil-producing countries
that it would further slash oil production, which caused oil
prices to spike on Monday.
Germany's 2-year bond yield , which is highly
sensitive to interest rate expectations, rose 3 basis points
(bps) to 2.687% on Tuesday.
It dipped 5 bps on Monday after survey data showed the U.S.
manufacturing sector weakened significantly in March,
outweighing concerns about a jump in oil prices.
Yields tumbled in March as cracks in the global banking
system caused investors to rush to the safety of government
bonds and dial back their expectations for how high central
banks can raise interest rates.
Yet yields - which move inversely to prices - have risen
sharply from their March lows as the banking fears have receded
and ECB officials have made clear more rate hikes are coming.
"Back to the focus on macro: one of the reasons why the bond
market ignored the jump in oil prices was because of the view
that the economic picture was softening," said Antoine Bouvet,
head or rates strategy at ING, a bank.
"For now I think we'll be oscillating around the current
level and just waiting for the data to signal one way or another
whether the underlying growth is softening."
Germany's 10-year yield , the benchmark for the
euro zone, rose 5 bps to 2.288%. That was well below the more
than 11-year high of 2.77% seen in early March, but up
considerably from a three-month low of 1.923% on March 20.
Data on Tuesday showed that German exports rose
significantly more than expected in February, by 4% on the
previous month. Economists polled by Reuters were expecting a
1.6% rise.
Bouvet said euro zone consumer expectations survey data, due
out at 0800 GMT, will show inflation expectations and could move
bond markets.
Italy's 10-year yield rose 4 bps to 4.134%. That
caused the gap between Italian and German borrowing costs - seen as a gauge of confidence in the euro zone's
more indebted countries - to fall slightly to 183 bps.
Traders expected the main ECB interest rate to peak at 3.6%
in September, according to prices in derivatives markets. Before
the banking crisis, investors had envisioned a peak of more than
4%.
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(Reporting by Harry Robertson
Editing by Bernadette Baum)
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