By Harry Robertson
LONDON, May 11 (Reuters) - Euro zone government bond
yields fell for a second day running on Thursday after data
showed U.S. inflation cooled more than expected in April.
Consumer price index inflation in the United States came it
at 4.9% year-on-year in April, data on Wednesday showed. That
was the 10th straight monthly fall and was marginally below the
5% figure economists expected.
Germany's 10-year bond yield fell 3 basis points
(bp) to 2.262%, after a 4 bp fall on Wednesday. Yields move
inversely to prices.
The German two-year yield , which is more
sensitive to interest rate expectations, was last down 3 bps at
2.593% after also falling 4 bps the previous day.
The drop in yields came despite Bloomberg reporting that
some European Central Bank officials think interest rate hikes
might be needed as far out as September and that rates could
rise to 4%.
Pooja Kumra, European rates strategist at TD Securities,
said euro zone bonds were shrugging off the possibility of
further ECB hikes and were rallying on the back of the U.S.
data.
"They're not able to sell off as much as how hawkish the ECB
is right now, just because everyone things that once the Fed is
done, everyone will follow," she said.
Last week, the ECB raised rates by 25 bps to 3.25%, a
slowdown in the pace of increases.
The sharp drop in U.S. inflation - it peaked at 9.1% in June
last year - has alleviated the pressure on the Federal Reserve
to keep raising interest rates.
That in turn has lessened pressure on central banks such as
the ECB, given the importance of the U.S. economy.
Italy's 10-year yield was last down 3 bps at
4.18%. That took the closely watched gap between German and
Italian borrowing costs to 190 bps.
Ratings agency Fitch will update its credit rating on Italy
on Friday, one of a number of risks coming up for Italian bonds.
Joachim Nagel, ECB policymaker and German central bank
chief, told Bloomberg on Thursday that the "story about hiking
rates is not over".
Yet on Wednesday, ECB policymaker Mario Centeno said the
central bank is approaching the end of the rate-hiking cycle.
Investors will listen closely to a speech by ECB governing
council member Isabel Schnabel on Thursday for any further
hints.
The Bank of England will set interest rates later on
Thursday. Traders broadly expect the central bank to hike 25 bps
to 4.5%, with British inflation running in double figures in
March.
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(Reporting by Harry Robertson; Editing by Angus MacSwan)
