Euro Zone Bonds Hit One-Month High Amid Interest Rate Speculation

EU flags at the European Commission Berlaymont building
EU flags at the European Commission Berlaymont building. Photo by Guillaume Périgois on Unsplash

Euro Zone bond yields hit a one-month high on Tuesday as investors expect further interest rate hikes from the European Central Bank. Germany’s 10-year bond yield, the European benchmark, rose to 2.502% while Italy’s 10-year yield hit 4.347%.

Tuesday’s bond hikes come after yields plunged around mid-March as Silicon Valley Bank collapsed, thereby setting off a chain of financial failures that included the emergency Swiss government-backed takeover of Credit Suisse by rival UBS.

As banking instability subsides and consumer prices continue to rise, central bank officials have returned to their previous monetary stance, whereby inflation is being treated as their number one priority.

The messages from central banks have been very hawkish lately, obviously from the Fed, especially late last week,” Jussi Hiljanen, head of rates strategy at lender SEB commented, referring specifically to the U.S. Federal Reserve pushing up bond yields. “When it comes to the ECB it’s pretty much the same thing. There has been a core of hawks – very vocal over the last few weeks.”

Currently, traders are approximately 62% confident that the European central bank will look to implement a 25 basis point hike at the next ECB policy meeting in May.