LONDON: German bond yields rose and a key measure of long-term euro zone inflation expectations struck a two-month peak on Tuesday as oil prices climbed to nearly $50 a barrel.
The steady rally in crude seen over the last fortnight saw U.S. crude futures trade at a seven-month high of $48.42. Analysts expect this to give inflation a boost and for this to show up in data from the world's largest economy later in the day.
This recovery was also seen lifting stock markets and major bond yields, with Europe's benchmark Bund yields up 2 basis points at 0.16 percent, pulling away from 2016 lows of 0.075 percent.
A measure of long-term euro zone consumer price growth often cited by the ECB, the five-year, five-year breakeven forward, also topped 1.50 percent for the first time since March, heading back towards the central bank's near 2 percent inflation target.
Analysts said a further rise in bond yields may be in the offing if, as expected, the U.S. posts strong inflation data that could be seen to increase the chances of a near-term interest rate rise from the Federal Reserve.
"If we are right...a serious re-pricing of Fed rate hike expectations would lead to a sensible increase in UST yields," UniCredit strategists said in a note. "Bunds, for their part, would follow suit."
Fed Fund Futures suggest markets currently see only a 4 percent chance of the hike in June.
Headline annual inflation rates in the U.S. are expected to rise back above 1 percent again and core rates above 2 pct.
Back in the euro zone, signals that a surge in the oil price may start to lift near-zero inflation will be welcome news for the European Central Bank, which is facing growing criticism of its ultra-easy monetary policy.
Germany's Constitutional Court confirmed on Tuesday it has received a complaint against the ECB's monetary policy. A weekend newspaper report said the ECB had been accused of overstepping its mandate by extensively buying government bonds and with its plan to start buying corporate bonds.
German politicians have also loudly complained about the ECB's low-interest rate policy in recent weeks, with Finance Minister Wolfgang Schaeuble partly blaming its policies for the rise of the right-wing Alternative for Germany party.
ECB Governing Council member Jens Weidmann said recent criticism may be the result of some measures having blurred the lines between monetary and fiscal policy.
Investors are eagerly awaiting minutes of the ECB's last policy meeting due on Thursday to see if this criticism is having any impact on the ECB's appetite for further easing.
"The stakes are certainly getting high but they can't give the impression at this moment that they are giving up," Credit Agricole strategist Orlando Green said.
There are also signs that the ECB's bond-buying scheme may be running into some snags. Central banking sources told Reuters that the ECB limited its buys of Portuguese and Irish debt last month due to concerns about hitting its purchase caps.
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