PARIS: Euro zone government bond yields were set for their biggest weekly rise of 2023 as fears of a banking crisis faded and investors’ focus shifted to the European Central Bank’s monetary tightening path.
The ECB should speed up its balance sheet reduction and could stop reinvesting cash from debt maturing in its largest bond-buying scheme to complement further interest rate hikes, Belgian policymaker Pierre Wunsch said. Reuters reported a growing number of European Central Bank policymakers have a similar stance.
Germany’s 10-year Bund yield, the benchmark for the euro zone, rose 6.5 basis points (bps) on Friday to 2.427%, its highest since mid March before fears about the health of the banking sector sent investors scrambling to the safety of government bonds.
The yield was on track to close the week up 24 bps, its biggest rise since mid December 2022.
The Bund yield hit its highest since July 2011 at 2.77% in early March and fell below 2% on March 20.
Also driving moves, several ECB officials mentioned the chance of a 50-basis-point rate hike in May, while Bundesbank chief Joachim Nagel said the euro area was not heading for a recession as growth was likely to accelerate after a weak first quarter.
Euro zone underlying price pressures, boosted by rapid nominal wage growth, will remain high for some time and only ease slowly, ECB President Christine Lagarde said on Friday.
European bonds were also influenced by higher US Treasury yields which rose after US February retail sales numbers were revised to indicate sales overall were not as weak as previously reported.