Eurozone bonds yields rise as markets assess ECB comments

[LONDON] Eurozone bond yields rose on Thursday (Feb 10) as investors assessed the European Central Bank's (ECB) latest comments, seeking clues on when it might hike interest rates.

Money markets are pricing in a first ECB rate hike as soon as June after president Christine Lagarde last week sent bond yields surging by signalling for the first time that a rate hike in 2022 could be a possibility to curb inflation.

Seeking to temper investors' growing expectations for aggressive action, Lagarde said on Monday there was no need for extensive tightening.

ECB board member Isabel Schnabel said on Wednesday the bank may need to raise rates if high energy prices risk pushing overall price growth expectations above the bank's 2 per cent target.

After easing in the previous day, Germany's 10-year yield, the benchmark for the bloc, was up about 2 basis points (bps) to 0.237 per cent, not far from a 3-year high of 0.275 per cent touched on Tuesday.

Germany's 5-year yield, which rose above 0 per cent for the first time since 2018 on Friday, was up 3 bps to -0.015 per cent.

The closely-watched Italian yield spread with German 10-year bonds, effectively the risk premium on Italian debt, edged up to 156.5 bps.

Simon Wells, chief European economist at HSBC, said he expected a steeper quantitative easing taper in March and a 25 bps rate hike only in October.

"This would allow the ECB to send a strong signal it was concerned about inflation and allow it to claim it was moving from a world of persistent inflation undershoots to a path of gradual normalisation," he said.

Money market bets imply around an 80 per cent chance of a 10 bps ECB rate hike by June and a 90 per cent chance of 50 bps of hikes by December. REUTERS