By Dhara Ranasinghe

LONDON (Reuters – Euro zone bond Yields rose Wednesday. They are still at multi-year highs as inflation data from Spain and Germany kept alive hopes that the European Central Bank will raise interest rates to ease price pressures.

After rising to 0% the day before, Germany’s 2-year bond yield rose six basis points to 0.01%. This was a continuation of the day’s record highs.

As inflation data raised expectations for rate hikes, benchmark 10-year bonds yields were also higher across the currency bloc. They rose by 5-6 basis points

Spanish consumer prices increased 9.8% year on year in March. This is their fastest pace of growth since May 1985. Meanwhile, data regionally collected from five states suggests that German inflation may be higher than 7%.

Ludovic Colon, senior portfolio manager at Vontobel in Switzerland, stated, “We have large numbers for inflation coming from Spain and other parts of Germany. This is something that no one would have predicted two to three months ago.”

“It’s difficult to forecast the future and this is why yields have become panicky. We don’t know when yields will end or where they are headed.”

Major economies’ bond markets have seen their worst decline in many years. This is the biggest jump in monthly yield since 2008, with two-year German bonds rising 53 bps.

Christine Lagarde of the ECB said Wednesday that energy and food prices must stop increasing in the bloc. Others, however, pushed for higher rates.

Peter Kazimir of the ECB said this year that Peter Kazimir could announce the first rate rise. This is despite the fact that it’d be within the ECB’s guidance to increase rates in September/December if the ECB stops buying bonds before then. Robert Holzmann, a policymaker, agreed.

The Eurozone money market prices in close to 70 basis points of ECB tightening.

Chris Scicluna of Daiwa Capital Markets’ head of research said the ECB is likely to raise the rate in 25 bps, instead of the 10 bps increments it used in the past.

He said that he didn’t think it was necessary to make smaller moves this time.

The ECB depo rates are at -0.5%. In 2011, the ECB hiked its rates.

Germany’s Bund 10 Year Yield was 5bps higher at 0.68% on Tuesday. This is close to the four-year record.

The U.S. bond market was also on the radar a day following the U.S. 2-year/10 year Treasury yield curve temporarily inverted for the second time since September 2019, indicating that there are increasing recession risk.

The spread stood at 8 bps.