European Bond Markets: German Bund Prices Rebound on Fading Rate Hike Expectations
Traders trimmed bets after data showed U.S. inflation unexpectedly fell German government bonds pared losses following bets on cross-strait interest rate hikes. The market expects the European Central Bank to raise interest rates by a cumulative 42 basis points by December, reaching 50 basis points earlier in the day. In the UK, the swap market reflects that interest rates will tighten by 18 basis points in September, down from the previous 27 basis points; traders have also scaled back their expectations for an interest rate hike before the end of the year. The German 10-year government bond yield once fell 1 basis point to 3.14%, reversing the 4 basis point increase earlier in the day; high oil prices kept short-end yields higher during the day, with the two-year yield rising 2 basis points to 2.75%, causing the yield curve to slightly distort and flatten. British government bond prices rose; short-term government bonds led the gains, with the two-year government bond yield falling 2 basis points to 4.33%. German bund yields fell 1 basis point to 3.10%; German Bund futures fell 11 points to 125.13; Italy's 10-year government bond yield fell 1 basis point to 3.86%; The Italian-German government bond spread did not change much and remained at 76 basis points; The French 10-year government bond yield changed little at 3.89%; The 10-year UK government bond yield fell 2.5 basis points to 4.94%.