Eurozone bond yields set for first weekly drop in 4 weeks

LONDON: Euro zone bond yields retreated from earlier highs and were set for their first weekly drop in four weeks as traders consolidated positions even as data showed inflation in the 19-nation bloc is increasingly broad-based.

With inflation in the euro zone hitting a fresh record on Friday, investors expect the European Central Bank to ditch its policy of negative interest rates and massive bond purchases as soon as July.

But the ECB’s first rate hike in over a decade is a small issue compared with the bigger question of how fast it should raise borrowing costs after that, the bank’s chief economist Philip Lane said on Friday.

Following the bloc-wide data on Friday, euro zone money markets priced in 90 basis points of European Central Bank rate hikes by year-end, compared to 85 bps after German data on Thursday.

A market gauge of euro zone inflation expectations edged lower to 2.4868% after rising to 2.5666%, the highest since 2012, according to ECB data.

After rising in earlier trade, Germany’s 10-year yield, the benchmark for the bloc, retraced gains and was flat on the day at 0.90%.

Two-year yields, sensitive to interest rate expectations, held on to earlier gains and were up 6 bps in Germany to 0.25%.