April 2 (Reuters) - Euro zone borrowing costs rose on
Tuesday as investors balanced the jump in U.S. Treasury yields
the day before against German data confirming that the
disinflation process was underway.
U.S. Treasury yields rose on Monday as economic data raised
doubts about whether the Federal Reserve could deliver on three
rate cuts this year.
Inflation fell in six economically important German states,
suggesting that national data will show a downward trajectory.
Money markets slightly increased their bets on future
European Central Bank (ECB) rate cuts, pricing in 93 bps in 2024
from around 90 bps before the data.
Economists will pay close attention to national inflation
data later on Tuesday, as Germany publishes its figures before
the euro zone inflation data release, due on Wednesday.
Germany's 10-year bond yield, the benchmark for
the bloc, rose 5.5 basis points (bps) to 2.35%. It hit 2.375%
earlier in the session, its highest level since March 25.
"While the Fed is likely to seek further reassurance that
inflation is heading sustainably back to its 2% annual target
before embarking on rate cuts, our base case remains that easing
should start at the June policy meeting with 75 basis points of
cuts for the year," said Mark Haefele, chief investment officer
at UBS Global Wealth Management.
Germany's two-year yield, more sensitive to ECB
rate expectations, was last 2 bps lower at 2.80%.
Italy's 10-year bond yield rose 7 bps to 3.74%,
with the closely-watched gap to Germany's 10-year yield at 137
bps. It hit 142 bps earlier in the session, its
highest level since March 4.
"Last week saw the potential of a perfect storm for euro
area government bonds with a further increase in Italy's tax
credits year-to-date on construction 'superbonus'," Citi
analysts said in a note to clients.
"This would make a downward trajectory for Italy's debt/GDP
ratio even more unlikely, adding to fiscal concerns already
emanating from France," it added.
The so-called Superbonus - a package of incentives for home
improvements - was originally expected to cost 35 billion euros
($37.9 billion) over 15 years. Still, the Treasury recently
acknowledged it had already forked out almost 150 billion euros
during the first four years alone.
Inflation data released on Friday showed that French
consumer prices rose by a smaller-than-expected 2.4%
year-on-year in March, while Italian EU-harmonised consumer
prices (HICP) came in below the median forecast of a Reuters
survey.
(Reporting by Stefano Rebaudo, editing by Emelia
Sithole-Matarise)