13 hrs ago
German Yields Hit 17-Year High as ECB Hike Bets Rise
Government bond prices fell across Europe, which pushed their interest rates higher.
Germany’s 10-year borrowing rate reached its highest level since 2009.
Investors think the European Central Bank may raise interest rates several more times.
ECB President Christine Lagarde said conflicts in the Middle East and Russia’s war against Ukraine are pushing energy prices higher.
Higher energy prices can make many other goods and services more expensive.
Oil rose above $105 a barrel, and European natural gas prices reached their highest level since late 2022.
Borrowing costs also rose in France and the United Kingdom.
Some investors think more rate increases are necessary, while others think markets may already be expecting too many hikes.
Germany’s 10-year yield climbed to 3.50%, its highest level since 2009.
Investors increased bets on three additional European Central Bank rate hikes by mid-next year.
Christine Lagarde cited Middle East and Ukraine-related energy risks as threats to inflation.
Brent crude rose above $105 a barrel, while European natural gas reached its highest level since late 2022.
French and UK borrowing costs also increased amid concerns about deficits, inflation and future rate rises.
- Who
- European bond traders, the European Central Bank and its President Christine Lagarde.
- What
- Government bond yields rose sharply as investors increased bets on additional interest-rate hikes.
- Where
- Across European bond markets, especially Germany, France and the United Kingdom.
- When
- The moves were reported during the week described in the article, with Germany’s 10-year yield reaching its highest level since 2009.
- Why
- Investors are concerned that higher energy prices linked to geopolitical conflicts will keep inflation above the ECB’s 2% target.
More Hikes Needed
Markets May Have Gone Too Far
Inflation Risk
More Hikes Needed
ECB officials and some strategists argue that higher energy costs could continue feeding inflation into core and food prices, making additional rate hikes necessary.
Markets May Have Gone Too Far
Other investors argue that more than two further hikes are already priced into European bonds and that markets may be overstating the need for additional tightening.
European Bond Valuations
More Hikes Needed
Patrick Ernst said another rate increase before year-end is no longer a low-probability risk because energy-driven inflation remains active.
Markets May Have Gone Too Far
Ed Hutchings said European bonds could offer value because markets may have already priced in too many future increases.
Key facts
- German 10-year yield
- Rose six basis points to 3.50%, the highest since 2009.
- German two-year yield
- Climbed as much as 14 basis points to 3.21%, the highest in almost three years.
- ECB rate expectations
- Markets fully priced three additional quarter-point increases by the middle of next year and assigned more than a 70% chance to a hike next month.
- Energy prices
- Brent crude moved above $105 a barrel, while European natural gas reached its highest level since late 2022.
- French-German spread
- The additional yield on French 10-year bonds reached 91 basis points, the highest intraday level since 2012.
- UK two-year yield
- Rose 16 basis points to 4.86%.
- UK 30-year yield
- Reached 5.93%, the highest since 1998.
Quotes
Patrick Ernst
Macro investment strategist at JPMorgan Private Bank
“Another hike before year-end is no longer a tail risk. Policymakers made clear that an energy-led inflation risk is still very much in play.”
livemint.com
“Energy, and natural gas in particular, has been the only game in town for euro rates since July.”
livemint.com
Sources
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