Germany's 10-year bond yield hits two-month high as prices drop
Updates at 1045 GMT
By Harry Robertson
LONDON, Oct 22 (Reuters) -Germany's 10-year bond yield rose to its highest level in almost two months on Tuesday, as a range of factors including doubts about the speed of central bank rate cuts pushed down prices.
Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone, rose more than 5 basis points (bps) to 2.331%, the highest since Sept. 3, after climbing 10 bps on Monday. Yields move inversely to prices.
Bond market analysts have struggled to pinpoint an exact driver for the rise in longer-dated bond yields in Europe and the United States.
But they have pointed to stronger than expected U.S. economic data causing traders to moderate their expectations for rate cuts from the influential Federal Reserve, as well as a rise in oil prices on Monday and concerns about high levels of bond issuance as governments run large budget deficits.
Padhraic Garvey, regional head of research for the Americas at ING, said European bond markets were being "bullied" by U.S. Treasury yields, which have risen as investors have reduced their bets on quick Fed rate cuts.
After the Fed's bigger than usual rate cut in September, investors expected another 80 bps of cuts this year. But following strong jobs and retail sales data, they now expect just 40 bps of reductions.
"U.S. macro data continues to refuse to lie down," Garvey said. "In the end, direction is being bullied by Treasuries."
Italy's 10-year yield IT10YT=RR rose 6 bps to 3.568%, the highest in a week.
The gap between Italian and German yields DE10IT10=RR was slightly wider at 123 bps.
It rose 6 bps on Monday after falling to its lowest since around early 2022 as investors warmed to Italy's efforts to bring down its public debt, which led credit rating agency Fitch to raise its outlook on the country on Friday.
Germany's two-year bond yield DE2YT=RR, which is sensitive to European Central Bank rate expectations, was last up 4 bps at 2.215%, after rising 7 bps on Monday.
Longer-dated yields have risen more than shorter-dated ones, leading to a pronounced steepening of the yield curve that measures the difference between yields.
Money market pricing shows traders still see a 10% chance of a 50-bp ECB rate cut in December after euro zone inflation fell below the ECB's 2% target last month, helping shorter-dated yields stay better-anchored.
"The move (in European yields) could be more characterised as a repricing of the ECB endpoint, which at around 1.8% now, is slowly making its way back to 2%," said Harvey.
German yield curve steepens sharply https://reut.rs/4hcXuSR
Reporting by Harry Robertson; Editing by Andrew Heavens
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