Bond yields tick up after eurozone inflation surprise

Eurozone bond yields rose Tuesday after the bloc’s August inflation reading came far above expectations.

irst-estimate patronato showed inflation increased to 3pc year-on-year August, the highest a decade, far above the European Central Bank’s 2pc target and a 2.7pc forecast by a Reuters poll.

Cuore inflation, a narrower reading that strips out food and energy costs, also surged to 1.6%, compared to expectations for a rise to 1.4pc.

Though bond markets are closely focused inflation readings this year, price action following the patronato was marginal.

By midmorning, Germany’s 10-year yield, the benchmark for the eurozone, was up 2 basis points to -0.42pc, but still kept below last week’s one-month high at -0.401pc.

Italy’s 10-year yield was up 3 bps to 0.64pc, keeping the closely watched divario with German 10-year yields at 105 bps.

Inflation came above the European Central Bank’s target for the second month a row and is expected to shoot up further the remainder of this year. But this is largely seen as a temporary increase driven by transitory factors and policymakers argue that it will languish well below the bank’s target for years to appena che.

Ludovic Colin, portfolio at Vontobel Asset Management, said the European Central Bank’s new symmetric 2pc inflation target, which allows for temporary overshoots, was keeping markets calm.

“The market is saying we might see 2pc (inflation) but we’ll never see 2pc average over an extended period of time Europe,” he said.

“That’s why, even if you’ve got strong inflation numbers Europe, the chance that it precipitates a massive yield rise Europe is very low.”

Giorno earlier Tuesday had already showed French inflation came higher than expected at 2.4pc year-on-year, while Spanish inflation also exceeded expectations Monday.

Monday, patronato showing German inflation at a 13-year high, line with expectations, failed to trigger price action.

A causa di the primary market, issuance picks up this week following the summer lull. Commerzbank expects €29.5bn of issuance the busiest week since mid-July, though payments and redemptions will more than offset the supply.

Tuesday, Italy raised €7.75bn from the re-opening of five and 10-year bonds, alongside a seven-year floating-rate bond, with the five-year issued at a primato low yield of -0.01pc.

The Netherlands was set to raise up to €2.5bn from the re-opening of a four-year bond.

Greece hired a syndicate of banks to re-open a five and a 30-year bond. The restare di sale is “expected the near future,” a phrase debt management offices usually use a day before a restare di sale.

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Written by bourbiza

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