By Harry Robertson
LONDON, May 2 (Reuters) - Euro zone government bond
yields rose sharply on Tuesday, playing catch-up with U.S.
Treasuries as markets reopened after a holiday and traders
waited for inflation data for the bloc.
U.S. yields rose on Monday, in a sign of relief about
JPMorgan's takeover of ailing U.S. lender First Republic and
after strong economic survey data suggested the Federal Reserve
might need to raise interest rates further to tame inflation.
Germany's 10-year yield , the benchmark for the
bloc, was up 6 basis points (bps) at 2.375% on Tuesday, having
risen more than 10 bps early in the session. Yields move
inversely to prices.
It followed a 12 bp rise in the U.S. 10-year Treasury yield on Monday, which was last down 4 bps at 3.538% on
Tuesday.
"The key point is what happened yesterday with the ISM
report and the fact that potentially you have some contagion
from the U.S. situation on the Euro situation," said Florian
Ielpo, head of macro at Lombard Odier, referring to Monday's
U.S. survey data, which showed some signs of inflationary
pressures.
Global bond yields fell sharply when cracks began to show in
the banking system in mid-March, yet have since rebounded
somewhat as central banks have made clear that fighting
inflation is a priority.
The euro zone's latest inflation figures, for April, are due
at 0900 GMT and will be a key data point ahead of the European
Central Bank's monetary policy decision on Thursday.
Lombard Odier's Ielpo said yields could fall in the coming
weeks if U.S. and European inflation cools faster than expected
and banking problems continue.
Germany's 2-year bond yield, which is sensitive
to interest rate expectations, rose 7 bps to 2.798% on Tuesday.
Italy's 10-year bond yield was up 8 bps at
4.262%. That pushed the gap between German and Italian 10-year
borrowing costs - a closely watched a gauge of investor
sentiment towards the euro zone's more indebted countries - up
slightly to 188 bps.
Also on investors' radars will be the ECB's quarterly bank
lending survey, due at 0800 GMT.
Data earlier in the day showed German retail sales fell 2.4%
in March, a much worse reading than the 0.4% increase economists
had expected.
France's 10-year bond yield was up 8 bps at
2.969%.
Ratings agency Fitch cut the country's credit rating by one
notch to AA- on Friday, saying potential political deadlock and
social unrest posed risks to President Emmanuel Macron's reform
agenda.
(Reporting by Harry Robertson; Editing by Kirsten Donovan)
