(Recasts to focus on rise in yields, adds analyst and ECB
official comments, updates prices)
By Harry Robertson and Samuel Indyk
LONDON, April 12 (Reuters) - Euro zone government bond
yields jumped on Wednesday in afternoon trading in Europe,
despite data showing that U.S. inflation cooled in March.
Germany's 2-year bond yield , which is sensitive
to changes in interest rate expectations, initially fell after
the U.S. data. It then reversed course and was last up 9 basis
points (bps) at 2.8%.
Germany's 10-year government bond yield , the
euro zone's benchmark, was last up 8 bps at 2.382%. Yields move
inversely to prices.
Analysts said the about-turn was somewhat confusing given
the cooling of price pressures in the U.S, but they said
"hawkish" comments from European Central Bank official Robert
Holzmann had likely added to the upward pressure on yields.
Holzmann, the head of Austria's central bank, told a German
newspaper that the ECB needs to keep hiking interest rates and
that another 50-basis-point hike in May is warranted.
"If we do not act vigorously enough now, the inflation
problem will only increase and we will end up being even
stricter," he told Boersen Zeitung.
Data on Wednesday showed that U.S. inflation, as measured by
the consumer price index (CPI), came in at 5% year-on-year in
March, down from 6% in February and below economists'
expectations of a 5.2% reading.
Core CPI - which strips out volatile food and energy prices
- gained 5.6% in March after rising 5.5% in February but was in
line with expectations.
U.S. bond yields fell as investors took stock of data that
could reduce the pressure on the Federal Reserve to keep raising
interest rates.
The U.S. 10-year yield was last down slightly,
helping the gap between German and U.S. 10-year yields narrow to
the smallest since July 2020, at 103 bps.
"I think the still hawkish tone from ECB speakers is helping
tighten the spread between EUR and USD yields," said Antoine
Bouvet, head of European rates strategy at ING.
"I would add that I think the Treasury rally on the CPI miss
was probably exaggerated given... core inflation is still
sticky."
Earlier in the day, ECB Vice-President Luis de Guindos said
the central bank was "not so optimsitic" about core inflation in
the euro zone, which is currently running at a record high of
5.7%.
Italy's 10-year government bond yield was last
up 8 bps at 4.24%. The closely watched yield gap between Italian
and German 10-year debt was little changed at 184
bps.
Market pricing showed that traders expect the ECB's main
rate to peak above 3.7% in November, from its current 3% level.
Investors were also awaiting the minutes from the Fed's most
recent meeting, due at 1800 GMT, which could indicate how recent
turmoil in the financial system will impact the path for
monetary policy.
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CPI 2 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Harry Robertson and Samuel Indyk, additional
reporting by Dhara Ranasinghe;
Editing by Raissa Kasolowsky, Bernadette Baum and Emelia
Sithole-Matarise)
Samuel.Indyk@thomsonreuters.com))
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