Title : Euro zone bond yields hit new multi-year highs

Sep 27, 2022 03:15AM ET

By:AnalysisWatch Eurozone government bond yields rose to new multi-year highs on Tuesday as investors positioned themselves for further interest rate hikes and the impact of the UK's "mini-budget" continued to reverberate in financial markets.

Most yields rose between 2 and 5 basis points in early European trading, with the German 10-year yield briefly reaching a new near 11-year high of 2.142%.

Italian yields rose more notably, with the 10-year yield up 8 basis points to 4.6%, after briefly topping 4.7% following Monday's big moves after a right-wing coalition won a clear majority in Sunday's elections.

Giorgia Meloni looks set to become Italy's first female prime minister at the head of its most right-wing government since World War II, inheriting one of the euro zone's biggest debt burdens at a time of rising interest rates and slowing economic growth.

Four members of the European Central Bank's Governing Council (GC) are due to speak on Tuesday. According to analysts at UniCredit, there are two dovish members and two others considered to be centrists on current monetary policy.

In a research note, the analysts stated

On Monday, Fed officials were again hawkish, stating that their priority remains to control domestic inflation, even with elevated market volatility.

The narrow spread between Italian and German yields widened to 265 basis points in early trading before falling below 250 basis points, which remains the highest since July.

"We see a reasonable chance that investors view these peak levels as overdone and that there is little incentive to price in even higher expectations at this point." "Concerns about growth seem to have been completely ignored in recent days," said analysts at UniCredit.