By Harry Robertson
LONDON, April 18 (Reuters) - Euro zone bond yields rose
to their highest levels in more than a month on Tuesday, as
investors braced for more interest rate hikes from the European
Central Bank.
Yields tumbled in mid-March as U.S. lender Silicon Valley
Bank collapsed and UBS took over Credit Suisse, causing
investors to snap up safe-haven bonds and dial down their
expectations for further central bank rate increases.
Yet yields - which move inversely to prices - have now
regained their mid-March levels as the banking jitters have
calmed and the central bankers have made clear that inflation is
still the number one problem.
Germany's 10-year bond yield , the benchmark for
the euro zone, rose to 2.5%, its highest since March 15. It was
last up 1.5 basis points (bps) at 2.495%.
Italy's 10-year yield climbed to 4.346%, the
highest since March 10. It last stood 2 bps higher at 4.34%.
Investors were also gauging the likely impact of
stronger-than-expected Chinese economic growth, which came in at
4.5% year-on-year in the first quarter, according to figures
released on Tuesday.
Jussi Hiljanen, head of rates strategy at lender SEB, said
comments from U.S. Federal Reserve officials had pushed up
global bond yields. U.S. moves impact Europe, given the power of
the American economy and financial system.
"The messages from central banks have been very hawkish
lately, obviously from the Fed especially late last week," he
said.
Fed official Christopher Waller on Friday said the rate
hikes so far "haven't made much progress" and that more are
needed.
Hiljanen added: "When it comes to the ECB it's pretty much
the same thing. There has been a core of hawks - very vocal over
the last few weeks."
ECB official Robert Holzmann has explicitly called for a 50
bps rate hike in May, although other policymakers have urged
more caution. Interest rates currently stand at 3%, up 350 bps
since July 2022.
Germany's 2-year yield , which is sensitive to
interest rate expectations, was last up 2 bps at 2.896%. That
was just below Monday's one-month high of 2.905%.
According to pricing in derivatives markets, traders think
there's a roughly 62% chance of a 25 bps rate hike at the next
ECB meeting in May, and a 38% chance of 50 bps.
They expect rates to rise to around 3.8% by November, the
highest terminal peak priced in since March 10. As banks wobbled
in mid-to-late March, traders expected rates to peak at around
3%.
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(Reporting by Harry Robertson; Editing by Muralikumar
Anantharaman)
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