Traders bet on two rate hikes by year-end before ECB meeting
TLT•German and Italian yields rise to multi-year levels
Germany's 10-year bond yield was up 2 basis points at 3.38% after reaching 3.3982% the day before, the highest since April 2011.
German two-year bond yields, more sensitive to policy rates, rose 2.5 bps to 3.0% after reaching 3.0115% last week, the highest since January 2024.
Traders were pricing the European Central Bank's deposit rate at 2.73% by December, implying a roughly 90% probability of an additional hike after the widely expected increase on Thursday, from the current 2.25%. Markets priced in a depo rate at 3.05% in September 2027.
A Reuters poll of 65 economists on September 3 had suggested the ECB would raise interest rates on Thursday for a second time and then end what would be its shortest hiking campaign in 15 years.
Italy’s 10-year government bond yields rose 2.5 bps to 4.21%. The yield gap versus safe-haven Bunds was at 80.50 bps.
Euro zone bond yields near multi-year highs ahead of ECB meeting
Sept. 9 (Reuters) - Euro zone government bond yields hovered near multi-year highs on Wednesday before the European Central Bank meeting as traders priced in two rate hikes in 2026 and a deposit rate of 3% by late 2027.
The ECB is widely expected to tighten its policy while reiterating its data-dependent stance as the Iran war drags on.
Investors were closely watching Brent crude, which rallied towards $100, as well as natural gas prices, which hit a fresh 3-1/2-year high TRNLTTFMc1, and the so-called crack spread – the margin between refined products and crude oil. Refinery costs have risen sharply since late June, fuelling inflation.
