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Eurozone Bond Yields Hit Multiyear Highs as ECB Rate Speculation Mounts -Breaking


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Geoffrey Smith — Eurozone yields reached multiyear highs on Wednesday amid growing speculation that the European Central Bank might be forced to accelerate its efforts to tighten monetary policies.

Frankfurt’s central bank already stated that it would stop buying net assets at the end this month. This will open the door for the first rate increase in over 11 years, at its July meeting. The ECB president Christine Lagarde and Philip Lane have suggested that a initial hike of 25 basis point will be followed up by a similar rise in September. This would bring an end to a nine-year period during which the key rate had been below zero. 

Many at the central bank feel this is too slow, as inflation reached a record 8.1% in May. Market expectations were far exceeded by that figure. The ECB’s reticence at moving faster has contrasted with the other central banks in the world, who have chosen to tighten their monetary policy more quickly. India’s central bank raised its key interest rate by 50 basis point on Wednesday. This follows a pattern established by the U.S. Federal Reserve and central banks of Australia, New Zealand, and New Zealand, in recent weeks. Klaas Knot (the Dutch central bank governor) and Peter Kazimir, his counterpart from Slovakia, have expressed an openness for a 50 basis-point hike in the key rate in July.

The Eurozone’s revision in first-quarter growth statistics will give the ECB more confidence. Eurostat’s estimate for growth in gross domestic products rose to 0.6%, up from an initial estimate at 0.3%. GDP is 5.4% higher now than March 2021. These figures suggest that there may be more momentum to the economy than we thought, even though it is weakening as a result of the conflict between Russia-Ukraine. 

At 10:01 AM ET (1300 GMT), the German 2-year Note yielded 0.7%, an increase of five basis points and the highest rate since 2011. The 10-year Bund rose 7 basis points to 1.35%. 

The 10-year yield of the Eurozone’s weaker bonds rose 10 basis point to 3.49% while the Spanish equivalent rose 8 basis point to 2.49%. 

Lagarde stated that the ECB would ensure that spreads between national credit will remain within acceptable limits while it tightens its policy. The ECB has always been able to achieve this goal through buying bonds from the markets, which is against current trends of trying not to inject liquidity into the financial market.