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LONDON: Euro zone government bond yields rose on Monday ahead of inflation data which is expected to show consumer prices climbing at a record pace in October, adding to pressure on the European Central Bank to continue aggressive policy tightening.

The harmonised index of consumer prices is forecast at 10.2% in October, according to a poll of economists surveyed by Reuters, up from 9.9% in September.

The inflation data is set to be released at 1000 GMT. National consumer prices data for October from Germany, France and Italy all surprised to the upside last week.

“After national data came in strong, generally exceeding analysts’ expectations, euro zone CPI inflation is likely to remain elevated,” UniCredit strategists said in a note.

“For the time being, realized inflation continues to delay the dovish pivot that fixed income investors expect (and hope) central banks will make,” UniCredit added.

By 0851 GMT, Germany’s 10-year government bond yield, the benchmark for the euro area, was up 5.5 basis points (bps) to 2.143%.

Germany’s two-year yield was up 3.5 bps to 1.959%.

The European Central Bank (ECB) policy meeting on Thursday had pushed investors to bet on a slower pace of rate hikes, but policy maker comments since the meeting and elevated price pressures signalled the central bank remains in tightening mode. On Sunday, ECB governing council member Klaas Knot said it was likely the next rate hike would be 50 or 75 bps.

Italy’s 10-year government bond yield rose 10 bps to 4.259%, pushing the closely watched spread between Italian and German 10-year yields wider by 5 bps to around 210 bps.

Eyes were also on the inflationary impact of Russia suspending participation in a UN-brokered Black Sea grain deal, dealing a blow to attempts to ease the global food crisis.

Chicago wheat futures jumped almost 6% on Monday and corn rose over 2% as Russia’s withdrawal from the agreement raised concerns over global supplies.

“Food inflation has been a big deal and any decline in grain shipments from Ukraine is not going to help the inflation issue,” said Lyn Graham-Taylor, senior rates strategist at Rabobank.

Euro zone bond yields drop again ahead of ECB meeting

“It’s another wrinkle to add to the many inflationary issues out there.” Looking further ahead, investor focus looks set to turn to the Federal Reserve policy meeting on Wednesday.

The Fed is likely to raise rates by 75 bps at the meeting but is seen slowing the pace of hikes from December.

“We’re of the view that no one is going to be pivoting yet. Any confirmation around that view will be pretty significant,” Rabobank’s Graham-Taylor added.

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