UPDATE 1-Euro zone bonds calm, but end September with hefty yield rise

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(Recast to lead with Monthly Moves)

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LONDON, Sep 30 (Businesshala) – Sovereign bond markets in the euro area were seen set on Thursday with the biggest jump in borrowing costs in months to the end of September as investors braced for higher inflation and a more harsh response from the world’s major central banks. are ready for

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Ten-year bond yields in the single currency bloc were broadly stable, down from nearly three-month highs earlier this week, as the past week calmed down after a raging bond selloff.

Signs that inflation may prove to be more sticky than anticipated, with a sharp turnaround at the US Federal Reserve and the Bank of England, have put markets on alert that central banks may roll back COVID stimulus measures sooner rather than later .

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In Germany, the euro zone’s benchmark bond issuer, 10-year bond yields were steady at -0.21%. They have risen 16 bps this month – the biggest monthly jump since February.

French and Dutch 10-year bond yields also rose nearly 16 bps this month, the biggest monthly increase since April.

“Every move we’ve seen since last week has been due to changing monetary policy expectations,” said Althea Spinozzi, senior fixed income strategist at Saxo Bank.

“It is becoming clear that central banks will first need to implement stricter monetary policies and pricing will be done at a faster pace than the market, especially in the US.”

A similar move has been seen in major bond markets as investors gear up for tighter monetary policy. British debt has been a major underperformer, with the 10-year gilt yield rising by nearly 40 bps in September.

The latest indication that high inflation in the euro area could last longer than policymakers expected has focused on inflation, preventing a deep recovery in debt markets for now.

Official data showed French inflation hit a nearly 10-year high of 2.7% in September, though slightly below forecast.

Headline inflation readings from some German states came in at around 4% year-over-year, with national numbers coming in later in the session.

Michael Lister, head of interest rate strategy at Commerzbank, said: “Today, the German CPI should deliver a 4%+ print and set the tone for tomorrow’s euro area HICP, for which the consensus is looking for a 3.3% headline rate. “

“Accordingly, ECB exit fears should persist and continue to test break-even higher levels,” he said, referring to the breakdown of inflation, a gauge of market inflation expectations.

Reporting by Dhara Ranasinghe; Editing by Amelia Sithole-Mataris and Gareth Jones

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