UPDATE 1-German yields fall from near 5-month highs, euro inflation gauge surges

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(iterates, adds details, updates prices)

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October 13 (Businesshala) – German bond yields fell from their highest level in nearly five months in a global rally on Wednesday, as markets continued to ease the recent jump in government borrowing costs.

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Germany’s 10-year yield, the benchmark for the euro area, was down 3 basis points at 0.13% by 1045 GMT, after rising 0.085%, up 3 basis points from the end of May in earlier trade. was the highest since. It fell along with British gilt and US Treasury yields, which were down for the second consecutive session.

“Today we are seeing some consolidation,” said Rainer Güntermann, rate strategist at Commerzbank in Frankfurt.

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Günterman said recent potential rate hikes by currency markets, which on Monday bet a 100% chance of a rate hike of 10 basis points by December 2022 by the European Central Bank, were “too far” and “too sharp”. happened.

Many investors say the ECB rate hike expectations have been too aggressive given the bank’s different policy path from the US Federal Reserve, meaning the ECB will need to raise rates higher to meet its new, symmetrical inflation target. Time will have to be kept short.

Yields on inflation-linked bonds, or real yields, fell more than nominal bond yields in the markets on Wednesday.

In the euro area, which carried a key measure of break-even inflation – the difference between nominal and real bond yields and a key market gauge of inflation expectations – was measured by the swap market at 1.8694% at 1.8694% in nearly seven years. .

“In a scenario where growth is disappointing, you would expect a fall in real yields and that would also be a sign that expectations for a rate hike are starting to fade,” said Commerzbank’s Güntermann.

The gauge has recently risen sharply as already rising inflation levels, as well as rising energy prices, have scared investors that inflation may be less temporary than expected.

All focus will be on US inflation data at 1230 GMT which will shed more light on the Federal Reserve’s likely monetary policy path.

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

The data will also be the last inflation number the Fed will look at ahead of its November meeting, where investors expect it to announce the start of reducing its bond purchases.

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

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.

In bond auctions, Italy raised 6.5 billion euros from three-, seven- and 30-year bonds, paying the highest returns in months. Germany raised 816 million euros from 30-year bonds. (Reporting by Yoruk Bahceli; Editing by John Stonestreet and Amelia Sithol-Mataris)

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