Short-end euro zone bond yields inch up after Fed hike

Short-dated euro zone government bond yields were slightly higher on Thursday, a day after the Federal Reserve raised its interest rate and signalled further increases to curb inflation.

The Fed raised the benchmark overnight interest rate by a quarter of a percentage point to the 3.75% to 4% range, its first increase in three years, while its projections showed a majority of policymakers anticipate at least one more hike by the end of the year.

The size and importance of the U.S. economy and the influence of the Federal Reserve on other central banks means U.S. monetary policy tends to affect global bond markets.

Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone, was little changed at 3.51%, just below its 17-year peak of 3.5723% hit on Tuesday.

The move in bonds was more evident at the policy-sensitive, shorter end of the curve, where Germany's two-year yield DE2YT=RR was up 1.5 basis points at 3.22%. Bond yields move inversely with prices.

The U.S. two-year yield US2YT=RR rose to its highest in over two years after the Fed decision but is slightly lower on Thursday at 4.692%.

As the Fed grabbed the headlines on Wednesday, investors in Europe also watched high oil and gas prices, which have raised the risk that the European Central Bank will have to increase interest rates again.

Brent crude futures LCOc1 remain above $104 per barrel although they were falling for a second day on Thursday.

"If oil prices remain above $100, we could see another hike in December and potentially more later," said Mohit Kumar, Jefferies chief European economist.

"If oil prices move lower, then a need for further hikes would be questioned."