LONDON: Euro zone government bond yields hit one-month highs on Friday as investors, looking ahead to Donald Trump's inauguration as US president later in the day, focused on prospects of stronger economic growth and higher inflation.
Since Trump's election win in November, bond yields have been pushed higher around the world by expectations that expansionist fiscal policies such as tax cuts and increased infrastructure spending would boost the economy and inflation, keeping pressure on the Federal Reserve to raise interest rates.
Fed chair Janet Yellen reiterated on Thursday that the central bank should continue to raise rates slowly or risk harming the economic recovery.
"Trump has been talking very strongly about his desire to invest heavily and deliver fiscal expansion," said Matt Cairns, fixed income strategist at Rabobank.
"Now we'll see what he has to say as president and that could be clear soon."
Trump is preparing to sign executive actions on his first day in the White House on Friday, taking opening steps to crack down on immigration, build a wall on the US-Mexican border and roll back outgoing President Barack Obama's policies. Germany's benchmark 10-year Bund yield rose 4 basis points to a one-month peak of 0.34 percent, having reversed initial falls.
German 30-year yields rose 5 bps to a five-week high of 1.18 percent. Other euro zone yields traded 2-4 bps higher.
They had opened lower as the European Central Bank's decision on Thursday to maintain its ultra-easy monetary policy and some caution ahead of Trump's inauguration supported bond markets.
But they were unable to sustain a rally in prices, which move in the opposite direction to yields, as US Treasuries came under renewed selling pressure.
US 10-year yields, pushed higher this week by stronger-than-expected economic data and Yellen's rate comments, climbed to a 2-1/2 week high of 2.51 percent.
A market gauge of long-term inflation expectations in the euro zone -- the five-year, five-year breakeven forward rate -- briefly hit a one-month low just under 1.72 percent.
That fall came a day after ECB President Mario Draghi played down a recent rise in inflation in the single currency bloc.
Monetary stimulus will not last forever, but it is still too early to discuss winding down the ECB's bond-purchase programme, Executive Board member Benoit Coeure said on Friday.
Comments
Comments are closed for this article.