Bund yields just off 15-year high ahead of ECB meeting
TLT•Bund, Italian and short-dated yields move
Germany's 10-year bond yield DE10YT=RR was down 1 basis point at 3.43%, after reaching 3.4389% on Wednesday, the highest since April 2011.
Some market participants argued that ECB rate-hike expectations had gone too far, as higher energy prices were likely to weigh on growth and help dampen inflation. They also said borrowing costs could fall sharply were the central bank to strike a more dovish tone.
Traders priced the ECB's deposit rate at 2.74% by December, up from the current 2.25%, implying almost two 25-bp rate hikes. By September 2027, markets saw the rate at 3.10%, fully pricing in a third increase and pointing to a roughly 40% chance of a fourth move.
“It will be intriguing how (ECB President Christine) Lagarde will address the developments in bond markets,” Erik Liem, strategist at Commerzbank, said.
“While it may be too early for the ECB's October 2023 playbook, even minor hints in this direction could have a significant impact today,” he added.
Following a series of rate increases after Russia's 2022 invasion of Ukraine sent European energy prices soaring, the ECB kept rates unchanged after a September 2023 hike and resisted calls for further tightening.
Energy prices dropped slightly on Thursday with Brent crude futures holding above $100 a barrel as traders braced for deeper supply disruptions.
German 2-year bond yields DE2YT=RR, more sensitive to policy rates, fell 2 bps to 3.03% after reaching 3.0658% early in the session, the highest since June 2024.
Italy’s 10-year government bond yields IT10YT=RR rose 2.5 bps to 4.21%, after hitting 4.3207%, the highest since November 2023. The yield gap versus safe-haven Bunds was at 81.50 bps.
