Euro zone bond yields rise as hot US inflation fuels rate hike bets
TLT•Euro zone bond yields rose after US inflation data increased expectations of Federal Reserve rate hikes. Germany’s 10-year yield rose 2 basis points to 3.481%, while money markets fully priced another European Central Bank hike by December.
1. Yields rise after US data
The US consumer price index rose 3.7% in the 12 months through September, while inflation excluding food and energy increased 2.6%, above the 2.5% expected. Markets implied about a 50% chance of a Federal Reserve hike at its October meeting, up from about 20% before the data, and fully priced a quarter-point hike by December.
2. European rate expectations
Germany’s 10-year yield, the euro zone benchmark, rose 2 basis points to 3.481%. Money markets fully priced another European Central Bank rate hike by its December meeting. ECB President Christine Lagarde said inflation had been driven predominantly, but not exclusively, by higher energy prices, and the bank was watching for signs of second-round effects.
