German yields near 5-month highs ahead of U.S. inflation data

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Oct 13 (Businesshala) – German bond yields rose on Wednesday to their highest level in nearly five months ahead of US inflation data that will shed further light on the Federal Reserve’s likely monetary policy path.

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Consumer prices are expected to rise 5.3% in September, according to a Businesshala poll unchanged from August.

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Already elevated inflation levels as well as rising energy prices have scared investors, and data due at 1230 GMT will also be the last inflation number ahead of the Fed’s November meeting, where investors are expected to that it may announce the beginning of its reduction. bond purchase.

The data will also be closely watched in Europe, where German bonds in particular are closely related to US Treasuries.

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As of 0709 GMT, Germany’s 10-year yield was unchanged at -0.10%, having risen to 0-0.85%, the highest since the end of May.

Hawkish signals from the Fed have been a major driver behind the rise of more than 20 bps in German 10-year yields over the past three weeks, the benchmark for the euro area. Investors have also bet on when the European Central Bank may raise interest rates.

Pitt Christiansen, chief analyst at Danske Bank, said: “The Bank of England and the Fed’s change of tune has led to higher euro government bond yields.”

“However, we are skeptical about whether the relationship with the euro government bond will continue in the US selloff. The ECB has shown a collective consensus on the ‘provisional narrative’ … which we find very important,” he said on inflation. Referring to the bank’s outlook, he said, which is currently well above its target.

Some investors say the ECB rate hike expectations have been too aggressive given the Fed’s divergent policy path from the bank, meaning the ECB will have to keep rates low to meet its new, symmetrical inflation target. .

In the bond auction, Italy will raise up to €6.5 billion in three-, seven- and 30-year bonds, and Germany will target €1 billion in 30-year bonds. (Reporting by Yoruk Bahcelli; Editing by John Stonestreet)

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