UPDATE 1-Euro zone bond yields tick up before U.S. inflation report

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November 10 (Businesshala) – Euro zone bond yields ticked up on Wednesday as markets await October’s US inflation report.

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The report, due 1330 GMT, is expected to show a 5.8% year-over-year increase in consumer prices in October, according to a Businesshala poll.

Overnight data shows sugar producer prices have risen higher than expected in October. This added to market concerns that inflation, which has been well above central banks’ targets for months, could be less temporary than expected.

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Euro zone bonds followed US Treasuries early Wednesday, with yields up 2-5 basis points across the curve.

Germany’s 10-year yield, the benchmark for the bloc, was up a basis point -0.28% by 1149 GMT, up slightly from the seven-week low of -0.299% touched on Tuesday.

Germany’s 30-year yield, which fell 10 bps on Tuesday and edged closer to negative territory for the first time since August, rose 3 bps to 0.05%.

Italy’s 10-year yield rose 4 bps to 0.89%, widening the closely watched gap with German counterparts slightly to 116 bps.

Euro zone bond yields have jumped wildly in recent weeks, marking the first time currency markets have bet on the European Central Bank’s rate hikes. They fell sharply after the Bank of England moved currency markets around the world, not raising the projected rate.

While markets are calm this week, long-term market-based inflation expectations have eased into the euro zone, rising above the ECB’s 2% target for the first time in 12 sessions on Tuesday, falling to just 1.96% by the close of the session . And keep it there on Wednesday.

Inflation-adjusted real yields also fell to record lows on Tuesday, a function of strong demand for credit linked to inflation. But it is also often seen as expressing concern over the growth outlook of the market.

“With global growth uncertainties, central banks hanging on to the fiery sword, year-end liquidity and over the medium term, our baseline outlook for inflation will prove to be temporary, we share the market’s hesitation. In other words, times are tough,” Citi analysts said in a note to clients.

In debt auctions, Germany raised 2.462 billion euros from the reopening of 10-year bonds.

But the 2.797 billion euros Germany received was less than the 3 billion it was targeting, leading to another technical failure – the third time in a row for a 10-year German auction.

Elsewhere, Portugal raised 1 billion euros by reopening bonds due in 2031 and 2037.

Editing by Timothy Heritage and Bernadette Baum

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