LONDON, Aug 10 (Reuters) - Euro zone bond yields crept lower
on Wednesday ahead of hotly anticipated U.S. inflation data as
Refinitiv data showed that traders have priced in a second
consecutive 50 basis-point hike from the European Central Bank
at its September meeting.
Euro zone money markets are now pricing in a 100% chance of
a 50 basis-point hike from the ECB next month, up from 95% on
Tuesday and around a 50% chance last week, the Refinitiv data
Traders have also increased their bets on another 75
basis-point hike from the Federal Reserve next month following
last week's better-than-forecast jobs data, which helped lift
yields away from last week's multi-month lows.
"The ECB are definitely going to try to front load as much
as they can," said Ben Laidler, global markets strategist at
"I think that makes sense given that they were late to
The ECB began their tightening cycle by raising interest
rates by 50 basis points in July, later than most other major
global central banks.
On Wednesday, German yields were edging lower ahead of the
U.S. consumer prices data, which is expected to show a slowdown
in headline inflation but an acceleration in core CPI.
At 0814 GMT, Germany's 10-year government bond yield
was down 2 basis points at 0.901%. The two-year
yield was down 1 basis point at 0.572%.
"It feels a little bit like the calm before the storm,"
eToro's Laidler said, ahead of the U.S. inflation report.
"If the underlying numbers show a deceleration, then maybe
that gives the Fed, and ultimately the ECB, some room to ease
off the interest rate pedal later in the year."
Meanwhile, Italian bonds have outperformed, with the 10-year
yield down 4 bps to 3.019%. Bond yields move
inversely with prices.
The closely watched gap between Italian and German 10-year
yields tightened to 209 bps.
"The current level of spreads are not taking into account
the political volatility and our scepticism over the ECB TPI
(Transmission Protection Instrument)," Mohit Kumar, interest
rate strategist at Jefferies, wrote in a note.
TPI is the ECB's new bond purchases team aimed at helping
more indebted euro countries.
"We maintain the view that spreads will reach 245-250bp
level sometime before the elections, but the trade may really
start to perform towards end August early September," Kumar
Italy heads to the polls on Sept. 25, with the mainly
right-wing bloc expected to win a majority in both houses of
(Reporting by Samuel Indyk; editing by Philippa Fletcher)