UPDATE 2-Euro zone bond yields rise as investors bet on more rate hikes

(Updates prices, adds chart) By Stefano Rebaudo and Harry Robertson April 24 (Reuters) - Euro zone government bond yields rose on Monday as investors bet the European Central Bank will raise its main interest rate to above 3.8% and braced for key economic data later in the week. First-quarter GDP data for the euro zone is due to be released on Friday. Inflation will also be in the spotlight on the same day, with German, French and Spanish figures potentially providing clues about the path of monetary policy. Germany's 2-year bond yield , which is highly sensitive to changes in interest rate expectations, rose 3 basis points (bps) on Monday to 2.947%. The German 10-year yield was flat at 2.484%. It was still almost 30 bps away from its early March level of 2.77%, which was its highest level since July 2011. On Monday, traders expected the ECB's main interest rate to peak at around 3.85% in November, according to pricing in derivatives markets. That was the highest projected peak since the banking jitters in March. Analysts pointed to "hawkish" comments from ECB official Pierre Wunsch, who told the Financial Times 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.

Olli Rehn, the governor of Finland's central bank, said on Friday the ECB should maintain a monetary policy that restricts demand. The central bank raised its main interest rate by 50 bps to 3% in March despite the banking troubles. It will set rates again on May 4. Data on Monday showed that German business morale rose slightly in April, adding to positive signs as Europe's largest economy hopes to have dodged a winter recession. "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. Italy's 10-year yield was little changed at 4.355%. That left 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 186 bps. If core inflation does not come down in April, and credit conditions do not show a serious tightening as a result of recent events, the ECB's decision could sway "towards a 50bps rate hike on May 4," said Reinhard Cluse, an economist at UBS.

The ECB Bank Lending Survey (BLS) for the first quarter, and monetary and credit data for March are due on May 2. Euro area borrowing costs showed muted reaction to recent changes in sovereign credit ratings. Ireland's 10-year government bond yield was down 7 bps at around 2.90% 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 4 bps to around 4.28% 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. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Euro zone yields bounce ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Stefano Rebaudo and Harry Robertson; editing by Jason Neely, Susan Fenton and Paul Simao)

harry.robertson@thomsonreuters.com))

Reuters

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

off-the-wire

UPDATE 2-Euro zone bond yields rise as investors bet on more rate hikes

By Reuters

Reuters

Reuters

Gold has a path to $4,000 as U.S. credibility crumbles - WisdomTree’s Nitesh Shah

Why gold revaluation charts put prices at $25,000-$55,000 if history rhymes, silver poised for breakout: Crescat Capital Strategist

Whether 145% or 10%, tariff uncertainty is enough to stop U.S. gold and silver imports, distort the metals market at all levels – Experts

Gold price plummets as U.S.-China trade relations thawing

Gold price down a bit amid better risk appetite