Euro zone bond yields mixed before German economic data

By Stefano Rebaudo

Jan 13 (Reuters) — Euro zone government bond yields were mixed on Friday ahead of German economic data that may question the bloc’s recessionary outlook and boost expectations of more monetary tightening.

Conversely, weak numbers from Germany could fuel a bond rally.The federal statistics office will release 2022 gross domestic product estimates later in the session.

U.S. Treasury yields fell on Thursday after inflation numbers cemented expectations of a slower rate-hiking path from the Federal Reserve, while euro area borrowing costs closed slightly higher than before the data.

Germany’s 10-year yield was up 0.5 basis points (bps) to 2.14%.On Thursday, it spent most of the session at its lowest levels in four weeks before hitting a day’s low right after the U.S. numbers at 2.06%.

Analysts said a bleak economic outlook in the bloc might slow down monetary tightening, even though European Central Bank officials had reiterated they would raise interest rates to fight inflation even in a recession.

«It’s a sort of tug of war with the financial markets, which bet that weak economic data and peaking inflation can force a policy easing,» said Massimiliano Maxia, canlı slot siteleri senior fixed income specialist at Allianz Global Investors.

«It’s difficult to say who’s right, but we are still slightly underweight on duration,» he added.

Greek central bank chief Yannis Stournaras said on Thursday the ECB would continue raising interest rates until there was the certainty that inflation was de-escalating towards the 2% target over the medium term.

Forwards on ECB euro short-term rate (ESTR) peaked in August 2023 at 3.3%, while pricing in a policy rate at 3.2% in December 2023 and at 2.8% in May 2024.

ECB policymaker Martins Kazaks is pushing back on investor bets that the ECB will cut interest rates by the end of this year, saying it would take a deep recession for borrowing costs to be lowered.

Italy’s 10-year government bond yield fell 3.5 bps to 3.96%, with the spread between Italian and German 10-year yields hitting its lowest level since December 8 at 178 bps.

The gap tightened by almost 20 bps this week, while bonds — but not the ECB ESTR forwards — were pricing a slower monetary tightening path from the ECB.

While headlines about German proposals for more joint EU debt fit the picture, canlı slot siteleri this has been «probably more of an excuse to cover shorts in the periphery,» Christoph Rieger, head of rates and credit research at Commerzbank, said.

Media said earlier this week that German Social Democrats would call for canlı slot siteleri the European Union to create new joint financing instruments to help member states compete against increased U.S.subsidies for green technology. (Reporting by Stefano Rebaudo, editing by Bradley Perrett)

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