Eurozone yields hit one-year highs

Eurozone bond yields hit one-year highs on Thursday as investors switched from bonds to stocks on signs of a reviving world economy and expectations of inflation and growth-boosting policies in the United States.
Germany's 10-year bond yields, the benchmark for the region, hit around one-year highs as did equivalents in France, Italy and Portugal, following a sharp rise in US stocks and Treasury yields overnight.
As the sell-off subsided later in the afternoon, Italian bonds emerged as the worst hit with investors fearing early elections could be on the way after a ruling from Italy's top court on Wednesday on a disputed electoral law.
The Dow Jones Industrial Average hit 20,000 for the first time on Wednesday. That move filtered through to other parts of the world on Thursday, and global stocks were heading towards all time highs even as bonds sold off.
"We are still on the theme of growth and the market is beginning to believe that Trump will actually do what he promised during the (presidential) campaign, so we have a shift from bonds to stocks," said DZ Bank analyst Rene Albrecht.
"But I would still be cautious because the (European Central Bank) purchases (to buy euro zone bonds) are still in place during 2017, so this could be a short-term move."
Trump has made several business-friendly decisions since taking office last week including signing executive orders to reduce regulatory burdens on domestic manufacturers and clearing the way for the construction of two oil pipelines.
In addition, comments by ECB Executive Board Member Sabine Lautenschlaeger could be pushing yields higher. She said on Tuesday the ECB could start planning an exit from its unprecedented stimulus programme in a rare public discussion about ending the bond-buying scheme.
"After Lautenschlaeger's comments, there has definitely been some talk in the market over tapering and interest rates," said KBC strategist Piet Lammens. "For the market, it is enough that the debate has started, it will start pricing it in."
Indeed, investors in money markets see around a 50 percent chance of the ECB raising rates by January 2018, shortly after the end date of its current bond-buying scheme.
The yield on Italy's 10-year government bonds rose 14 bps to a 16-month high of 2.25 percent, while the spread over Spanish equivalents hit its highest since February 2012 at 66 bps.
German 10-year yields rose close to 0.50 percent for the first time in a year, while France's topped 1 percent and Portugal's hit 4.16 percent.