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Title: Euro zone yields edge lower ahead of key inflation data, markets fully price a 50bps ECB hike

Aug 10, 2022 02:41 AM ET

By: AnalysisWatch

Eurozone bond yields fell on Wednesday ahead of eagerly awaited US inflation data, as Refinitiv data showed traders were pricing in a second straight 50 basis-point rate hike by the European Central Bank at its September meeting.

The Refinitiv data showed that money markets in the euro zone are now pricing in a 100 percent probability of a 50 basis point hike by the ECB next month, compared with a 95 percent probability on Tuesday and about a 50 percent probability last week, the Refinitiv data showed.

Traders have also increased their bets on another 75 basis point hike by the Federal Reserve next month after better-than-forecast jobs data last week helped push yields away from last week's multi-month lows.

The ECB began its rate-tightening cycle by raising them by 50 basis points in July, a month later than most other major global central banks.

On Wednesday, German yields fell ahead of U.S. consumer price data, which is expected to show a slowdown in headline inflation but an acceleration in the core consumer price index.

At 8:14 a.m. EDT, Germany's 10-year government bond yield fell 2 basis points to 0.901%. Two-year bond yields fell 1 basis point to 0.572%.

At the same time, Italian bonds outperformed, with the yield on the 10-year IT10Y index down 4 basis points to 3.019%. Bond yields move inversely to prices.

The closely watched gap between Italian and German 10-year bond yields narrowed to 209 basis points.

The TPI is the ECB's new bond-buying team aimed at helping the more indebted eurozone countries.

Italy heads to the polls on September 25, with the mainly right-wing bloc expected to win a majority in both houses of parliament

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