German Bund yields hold near three-week highs on upbeat data, hawkish Fed

Germany's 10-year Bund yield, the benchmark for borrowing costs in the euro area, held near three-week highs on Monday as upbeat economic data and hawkish comments from US Federal Reserve officials underlined a bearish tone towards bond markets. Data on Monday showed German industrial production rose for the second consecutive month in November and exports jumped more than expected, boosting expectations for a rebound in Europe's biggest economy in the fourth quarter.
That, together with Friday's closely-tracked US jobs numbers showing a rebound in wages last month, adds to growing signs of a pick-up in inflation and economic growth around the globe that suggests the tide has turned for a three-decade bull run in bonds. A number of hawkish comments from US Federal Reserve officials also weighed on sentiment. Chicago Federal Reserve President Charles Evans added following the jobs numbers that the central bank could lift interest rates three times this year, faster than he had expected just a few months ago.
"It's a very bearish market right now," said DZ Bank rates strategist Rene Albrecht. "We've had a decent US jobs report and hawkish comments from Fed speakers. On top of that we have good German numbers today, so markets are pricing in a better economic growth outlook globally." The German 10-year Bund yield was little changed on the day at 0.30 percent, but was close to a three-week high of almost 0.33 percent hit in early trade. It ended Friday with a weekly rise of almost 10 basis points - that was the biggest weekly jump in almost two months and came in a week in which data showed German inflation at its highest level in more than three years in December.
Most other euro zone bond yields gave up early rises and were lower, with southern European bond yields down 4-6 bps. Analysts said that was probably a correction from a sharp sell-off last week. They expected yields to come under upward pressure from a slate of heavy bond supply this week, while sentiment towards Italian bonds could be put to the test ahead of a key DBRS ratings review on Friday. The Netherlands, Austria, Germany and Italy hold auctions this week, while Portugal is expected to sell a 7-or 10-year bond via a group of banks. Analysts at Mizuho also expect Belgium to sell a 10-year bond via a syndicate of banks this week.