Written by Stefano Rebaudo
Sept 12 (Reuters) – Eurozone government bond yields stabilized on Tuesday as money markets ratcheted up expectations for further interest rate hikes by the European Central Bank.
Investors are almost evenly divided on this week’s decision, with a 45% chance of the ECB’s euro short-term interest rate (ESTR) moving forward by 25 basis points (bp), up from about 40% a day earlier.
They are increasingly confident that there is about an 80% chance that the ECB will decide on policy by the end of the year, and that there will be no further tightening after that. On Monday, it was 75%.
Germany’s wholesale prices fell for the fifth straight month in August due to lower prices for mineral oil products, data released by the Federal Statistical Office on Tuesday showed.
The yield on German 10-year government bonds, a benchmark for the euro zone, was flat at 2.36%.
Oil prices have recently raised concerns about the inflation outlook.
Brent crude oil futures hovered above $90 a barrel on Tuesday, after hitting the same level last week for the first time in 10 months, after Saudi Arabia and Russia announced extensions to voluntary supply cuts.
Analysts claimed investors were bracing for Thursday’s ECB policy meeting and Wednesday’s key US inflation data.
Benjamin Schroeder, senior rates strategist at ING, said: “The hawkish tone of the US CPI data and the ECB’s rate hike could push front-end rates further higher this week, providing potential for near-term curve flattening. There is,” he said. Research notes.
U.S. inflation data could increase expectations that the Federal Reserve will keep interest rates unchanged at its policymakers meeting next week.
Recent comments from Fed officials indicate that while the Fed is content to keep rates unchanged at its next policy meeting on September 19-20, it is not ready to declare the fight against inflation over. ing.
Italy’s 10-year government bond yield, a benchmark for countries around the eurozone, was unchanged at 4.39%.
The yield spread between Italy and Germany’s 10-year bonds, a gauge of investor sentiment towards debtor countries in the euro zone, was 175 basis points, just below its highest level in two months.
Some market participants expect that the ECB’s accelerated quantitative tightening measures, including reductions in its bond portfolio, could have a negative impact on peripheral bond prices.
Bond yields move inversely to prices.
ECB hawks will end reinvestment from bonds purchased under the 1.7 trillion euro ($1.82 trillion) Pandemic Emergency Purchase Program (PEPP) before the current deadline at the end of 2024. I’m asking you to.
Elsewhere, the UK labor market showed signs of further cooling in the three months to July, although another month of solid wage growth had a small impact on gold prices.
(Reporting by Stefano Rebaudo; Editing by Ed Osmond)