Eurozone yields rise, following moves in US Treasuries

Eurozone borrowing costs rose on Thursday as a jump in US Treasury yields the day after the Federal Reserve’s policy meeting offset dovish signals from the Bank of England. The yield on 10-year Treasuries rose 13 basis points to 3.074% after a volatile day centered on Federal Reserve Chairman Jerome Powell’s halt to rate hikes of more than 50 basis points .

“U.S. markets took the lead as investors are still digesting the impact of the Federal Reserve’s policy meeting, realizing that Fed Chairman Powell’s message was not so dovish,” said Massimiliano Maxia, analyst. Senior Fixed Income at Allianz Global Investors. nearly 3% by the end of the year.” “Fears of soaring inflation and strong monetary tightening measures from the ECB are still center stage,” he said. added.

The Bank of England on Thursday raised interest rates to their highest level since 2009 at 1% to counter inflation which is now heading above 10%, even as it warned that Britain Britain was in danger of falling into recession. The BoE “has downgraded its forecast for the UK economy, and it looks like the tightening cycle is about to end soon. It’s a pacifist signal also for the eurozone,” said Antoine Bouvet , Senior Rates Strategist at ING.

The yield on Germany’s 10-year government bonds, the bloc’s benchmark, rose 6 basis points (bps) to 1.033%. The two-year yield, which is more sensitive to interest rate expectations, remained stable at 0.27%. Money markets are still anticipating an ECB rate hike of around 90 basis points by the end of the year. They priced in an 85% probability of a 25 basis point rate hike by July.

The European Central Bank is expected to raise its deposit rate in July by 0.25 percentage points, ECB policy chief Olli Rehn told a Finnish daily on Thursday. In Italy, the 10-year rate rose 6 basis points to 3.029%, its highest level since December 2018, with the risk premium closely watched on German bonds at 196 basis points, after reaching the highest level. level since May 2020 at over 198 basis points on Wednesday.

There was little reaction to remarks from ECB chief economist Philip Lane, who said the bank was bracing for a string of rate hikes that would put its benchmark in positive territory. The path he takes is more important than the exact date of the first move, Lane added.

Earlier on Thursday, Fabio Panetta, a member of the ECB’s board, said the bank is not expected to raise interest rates in July, a move that a growing number of policymakers are advocating, and that it should wait. to see the GDP data for the eurozone in the second quarter. In the primary market, Spain raised €5.61 billion in 5-50 year bonds and France raised €10.99 billion in 10-30 year bonds.

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