UPDATE 2-Germany Bund yields hit highest since May, ECB rate hike bets jump

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(Chart updated with quotes)

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LONDON, Oct 11 (Businesshala) – A sell-off in European bond markets picked up pace on Monday, with German debt yields hitting their highest level since May, while money markets are set to rate the European Central Bank through the end of 2022. Totally gone over the price.

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Fresh jump in bond yields, Britain led to push down prices. Short-debt gilt yields rose to their highest level since early 2020 after Bank of England Governor Andrew Bailey and policymaker Michael Saunders expressed concerns about rising inflation following weekend comments.

Gilt yields rose more than 5 basis points, leading to a fall in euro area bond yields. Switzerland’s 10-year bond yield rose to its highest level of around -0.067% since the end of 2018.

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“Usually everything comes down to inflation and inflation expectations, which are rising. Higher inflation expectations are driving yields and leading to an implicit response from central banks which is also negative for bond markets,” said Peter Shafrick, global macro strategist at RBC Capital Markets.

“The UK is on the right and at the center of it, for the underlying central bank’s response.”

Germany’s benchmark 10-year Bund yield rose more than 2 basis points to -0.116%, its highest since May. It has gained over 20 bps in the last month and is approaching positive yield zone.

Ionia money market futures, dated for the European Central Bank’s December 2022 meeting, now see an over 80% chance of a 10 bps move, compared to a nearly 60% chance on Friday.

The market cap briefly jumped up to 100% in early trade as hawkish Bank of England comments stirred the markets.

According to money market pricing, the probability of a September 2022 ECB rate hike was more than 70% versus almost 50% at the end of last week.

“Euro zone rates should show better resilience than their US peers, but ultimately inflation is also causing some concern among ECB members,” said Antoine Bouvet, senior rate strategist at ING.

“(ECB chief Christine) Lagarde tried to assuage market inflation fears, but the front-end is pushing the date of the first hike.”

While Friday’s US non-farm payrolls number was weaker than forecast, it was not weak enough to convince markets that the US Federal Reserve would not proceed with reducing its bond-buying stimulus in the coming weeks.

US Treasury yields rose sharply on Friday but the bond market was closed for Columbus Day on Monday.

Oil prices jumped again on Monday as major economies hit by the energy crisis showed no signs of easing amid a pick-up in economic activity and supply curbs from major producers.

Brent crude was up 2% at $84 a barrel by 0945 GMT after gaining nearly 4% last week.

Reporting by Dhara Ranasinghe; Editing by Toby Chopra and Edwina Gibbs


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