LIVE MARKETS-Why euro rate bets will keep shrugging off lower oil prices

Short-dated government bond yields have been quick to follow oil prices higher, but far more reluctant to track them lower.

Analysts have been mentioning the ECB's hawkish stance and resilient economic growth, low European gas storage levels and rising crack spreads, which reflect refining margins on products such as gasoline and diesel, as key drivers of elevated short-dated yields.

However, the big deal remains the strength of the economy.

“The big fear for central banks is that higher inflation materialises through accelerating wage growth,” said Michiel Tukker, rate strategist at ING.

“A weakening growth outlook would mitigate this risk,” he adds, referring to expectations of additional ECB monetary tightening.

“Having said that, the very positive sentiment -- see almost record equities -- will limit markets’ sensitivity to one-off downside growth surprises.”

Business activity across the euro zone accelerated this month at its fastest rate in over three years, confounding expectations for a slowdown.