By Dhara Ranasinghe

LONDON, (Reuters) – Euro zone bond yields increased on Wednesday following data that showed a larger-than-expected increase in U.S. Inflation last month. This suggests that price pressures remain high in the largest economy in the world and keep pressure on the Federal Reserve.

Investors took comfort in signs suggesting that tightening of the European Central Bank’s monetary policy would be gradual earlier in the session.

Christine Lagarde (ECB President) stated that the ECB will likely end its stimulus program for bond-buying in the third quarter. Then, a rate increase could be just a few weeks later.

Data showing that U.S. annual inflation increased 8.3% in April was lower than 8.5% one month ago, however, it exceeded analyst expectations of an 8.1% increase, which triggered some selling of bonds.

Germany’s 10-year Bund yield stood at 1.07%. The previous day, it was up just 6.4 basis point. This is its lowest level since almost one week ago.

Analysts suggested that the tone of Wednesday’s comments by the ECB suggests a slower rate-hike path than a fast one. This is in contrast to the aggressive rate-rise bets, which have driven borrowing costs throughout the bloc to highs for many years.

Francois Villeroy de Galhau, ECB spokesperson, stated that the ECB will gradually increase rates starting in the summer.

Jan von Gerich is chief analyst for Nordea. “One portion of the message by the ECB suggests that rate rises will start in July. But the other part, however, is that the path won’t be rapid. Which is also what Lagarde is suggesting.”

The ECB does NOT see an active route of hiking policy as the Fed. Normalization will therefore be slow and gradual, he said. He was referring to U.S. Federal Reserve, which delivered a substantial half-point rate increase last week, with further increases expected at future meetings.

Italian 10-year bonds yields fell by 2.93% to their lowest point in over a week, before moving higher following the U.S. CPI data. Last time, they rose 2.5 bps to just over 3%.

A key indicator that measures the long-term expectations of inflation in the Euro area rebounded to close to 2.25 percent after U.S. data. This was another volatile session in bond markets. This was down seven weeks from its previous low of 2.1939%.

According to Reuters, a memo from the bank that managed the syndicated-bond sales showed that the European Union had priced bonds worth 9 billion euros, which will be due in 2025/2051 according to Reuters.

Germany sold 3.23 Billion Euros in 10-year Bunds while Portugal auctioned 750 MILLION euros of bonds due to mature in 2030.