Euro zone yields near one-week highs as bets build on Fed tightening

Key Facts

Euro zone government bond yields held near their highest levels in more than a week on Thursday, Nov. 12, according to Investing.com, amid a global sell-off in fixed-income markets and expectations that the U.S. Federal Reserve would raise interest rates more aggressively. Those bets kept borrowing pressures in European markets in focus, even as some yields had declined in previous sessions. The move followed U.S. data showing core inflation rose more than economists expected in October. Investing.com’s coverage linked the global sell-off to a repricing of the U.S. interest-rate path. The European session’s reading remains tied to market moves that day, not to figures from other sessions.

U.S. core inflation rose 0.3% month over month in October, exceeding economists’ expectations of 0.2%, according to the inflation report cited by Investing.com. The reading refocused investors on the possibility that U.S. monetary policy would remain tighter. The Associated Press said on Nov. 11 that price increases could spread from one-off shocks linked to tariffs and higher fuel prices to a broader range of the U.S. economy. Wider pressures could make borrowing through mortgages, credit cards and other channels more expensive. In that sense, inflation data and interest-rate expectations were central to explaining the global bond sell-off, without determining the moves of every market or yield on their own.

Federal Reserve Governor Christopher Waller said a core inflation reading of 0.3% could lead him to consider supporting a large 50-basis-point increase at the December meeting. Investing.com cited his remarks among the factors that fueled tightening bets, as investors assessed the impact of U.S. data on the interest-rate path. In Tuesday’s session, Nov. 10, the U.S. 10-year Treasury yield rose to 4.99% from 4.88% late Monday, according to the Associated Press. Those U.S. levels refer to that session and illustrate the Treasury market’s move after the inflation data, not European yield levels on Nov. 12. Another Investing.com report said the U.S. 10-year yield reached 5.04% on Nov. 11, while U.S. Treasury markets remained closed for Veterans Day.

European bonds moved in different directions in the days before the Nov. 12 session. On Nov. 11, the German 10-year yield held at 3.307%, while the two-year yield was unchanged at 3.072%, after yields recorded their biggest daily jump since September in the previous session, according to Investing.com. Reuters reported that the German 10-year yield rose 4 basis points on Tuesday, Nov. 10, alongside a 12-basis-point jump in U.S. 10-year borrowing costs after the inflation data. The German yield then fell 2 basis points the following day to 3.29%, the same report said. These figures show that European yields had eased on Nov. 11 after a sharp rise, before holding near their highest levels in more than a week on Thursday.

In France, the 10-year yield fell 5 basis points to 4.741% on Nov. 11, after rising 7 basis points the previous day, according to Reuters via Zawya. The spread between French and German yields narrowed to 144 basis points on Nov. 11. The spread had reached 178 basis points in October, its highest since 2011, the report said. On monetary policy, traders added bets on U.S. increases and viewed a December increase as certain, according to Reuters. They also considered a European Central Bank hike in December almost certain, while its chief economist, Philip Lane, said a December rate increase would be "wise" if the data did not change materially.

Attention in the euro zone is turning to the European Central Bank’s next monetary policy meeting in Frankfurt on Nov. 25 and 26, according to the bank’s calendar. The meeting begins on Nov. 25 and continues the following day, followed by a news conference on Nov. 26. It comes after Lane’s remarks that a December rate increase could be wise if the data did not change materially, and traders’ bets that made a hike almost certain in their view. In the United States, market developments cited by the sources indicate that inflation data and Waller’s remarks on a possible 50-basis-point increase in December remained among the factors reshaping interest-rate expectations. Investors will keep that backdrop in view as they follow the ECB meeting scheduled in Frankfurt.