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Euro zone bond yields track US Treasuries' rise, Italian spread hits one-month high
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Euro zone bond yields track US Treasuries' rise, Italian spread hits one-month high
Apr 2, 2024 2:51 AM

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)

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