Euro zone bond yields tick up, inflation data in focus

LONDON: Euro zone bond yields rose on Thursday as headline inflation data from several European markets came in slightly above expectations, underscoring remarks from policy makers about the stickiness of price rises.

Germany's 10-year bond yield, the benchmark for the currency bloc, was 3 basis points (bps) higher at 2.34%, while the two-year yield was up a similar amount at 3.20%.

Inflation rose in five economically important German states in June, preliminary data showed on Thursday, suggesting a bumpy road ahead for German inflation.

The increase was partly expected because of the comparison with June 2022 when Germany brought in extraordinary measures to cap costs on transport and fuel.

Euro zone bond yields edge lower ahead of inflation data

There was better news from Spain for policymakers in their fight against price rises, as data there showed consumer prices rose 1.9% year-on-year in June, their slowest increase since March 2021.

This was still ahead of expectations, however, and Wouter Thierie, an economist at ING said an increase in oil prices and the changes in government support among others factors would "likely push inflation back above the ECB's target during the coming winter season."

Euro zone wide inflation data is due on Friday, along with a gauge of U.S. inflation, the personal consumption expenditure data, the Federal Reserve's preferred measure of inflation.

The German and Spanish data earlier on Thursday caused Goldman Sachs analysts to revise up slightly their euro area headline inflation forecast.

Leaders of the world's top central banks, including ECB President Christine Lagarde, reaffirmed on Wednesday they think further policy tightening will be needed to tame inflation.

An aggressive series of rate hikes from central bankers in Europe and around the world weighed heavily on government bond prices last year and in early 2023.

"We still have more ground to cover," Lagarde said of the fight against inflation. "We are not seeing enough tangible evidence of the fact that underlying inflation, particularly domestic prices, are stabilising and moving down."

Italy's 10-year bond yield, the benchmark for the euro zone periphery rose nearly 5 bps to 4.02% and its two year yield rose 4 bps to 3.83%.