By Stefano Rebaudo
April 24 (Reuters) - Euro zone government bond yields
fell on Monday, with investors cautious about an upward
repricing of future rate hikes ahead of crucial economic data
due later this week.
The print of GDP growth in 2023, due on Friday, will give an
initial indication of the economy's trajectory and the impact of
elevated energy prices and tighter banking standards.
Inflation will be in the spotlight on the same day with
German, French and Spanish data, which might provide clues about
the future monetary tightening path.
Germany's 10-year government bond yield , the
bloc's benchmark, was down 4 basis points (bps) to 2.444%. It
was still more than 30 bps away from its highest level since
July 2011 which it hit in early March at 2.77%.
"A pick-up in (euro area) headline inflation due to base
effects and an unchanged core rate will probably not be enough
to motivate a 50bp hike next week, but neither will it herald a
pause," said Rainer Guntermann, rates strategist at Commerzbank.
Money markets are currently pricing in about a 70% chance of
a 25 bps rate hike in May and a 30% chance of a 50 bps move. Meanwhile, the European Central Bank's hawkish officials
kept banging the inflation drum and suggesting interest rates
must keep rising.
Belgian central bank chief Pierre Wunsch said he would not
be surprised if the ECB deposit facility rate goes to 4%, adding
that the central bank should keep raising rates until wage
growth slows.
Finnish central bank governor Olli Rehn said on Friday the
ECB should maintain a monetary policy that restricts demand.
The November 2023 ECB euro short-term rate (ESTR) forward was at 3.72%, implying market expectations for
an ECB depo rate of around 3.8% by year-end.
Market bets on the ECB terminal rate have hovered around
3.8% since early last week.
Italy's 10-year yield fell 5 bps 4.31%, with the
spread between Italian and German 10-year yields -- a gauge of investor confidence in the more indebted countries
of the euro zone – stable at 185 bps.
Euro area borrowing costs showed muted reaction to recent
changes in sovereign credit ratings.
Ireland's 10-year government bond yield fell 2.5
bps to 2.862% after Moody's upgraded its rating to Aa3 from A1
and changed the outlook to stable from positive.
Greece's 10-year bond yield fell 2.5 bps to 4.29% after S&P
revised its outlook to positive from stable and affirmed the
ratings at BB+/B, arguing that structural reforms, economic
resilience, and EU support have improved government finances and
financial sector stability.
(Reporting by Stefano Rebaudo; editing by Jason Neely)
