By John Geddie
LONDON Oct 11 Europe's benchmark bond yield
held near a one-month high on Tuesday after an
inflation-boosting rise in oil prices coincided with more hints
that central bankers were stepping back from the aggressive
monetary easing stance of recent years.
German 10-year yields fell slightly on the day, but were
still near that peak, as other bond benchmarks in the United
States and Japan hit four-month and three-week highs,
Brent crude struck a one-year high on Monday after Russia
said it was ready to join a group of oil producers planning to
curb oil output.
This signals a potential boost to inflation that would take
the heat off central banks struggling to lift consumer prices
with ultra-low rates and bond-buying purchase programmes.
After a recent Bloomberg report that a consensus is growing
among European Central Bank policymakers to eventually scale
back or "taper" purchases, Governing Council member Ignazio
Visco said on Monday that any exit would largely depend on
Bank of Japan Governor Haruhiko Kuroda said on Sunday that
its bond buying could be reduced considerably under a new
framework adopted last month, while the U.S. Federal Reserve is
broadly expected to raise rates for just the second time in a
decade later this year.
"The bearish trend is your friend," wrote Societe Generale
strategists in a note on Tuesday.
"Concerns about central banks turning the corner are growing
... and hurting bonds. The ... rise in oil prices only added to
the bond misery."
German 10-year bond yields were down 2.3 basis points (bps)
to 0.03 percent on Tuesday, putting to an end a
steady rise in the yield since the end of September.
A key market measure of long-term inflation expectations in
the euro zone - the five-year breakeven forward rate
- is at its highest level since June.
Japanese yields earlier climbed 2 bps to hit minus 0.05
percent for the first time since Sept. 23, while
U.S. equivalents hit 1.78 percent, the highest since
The dollar hit an 11-week high against a basket of major
currencies, as money market prices suggested a 70 percent
chance the Federal Reserve will hike interest rates at its Dec.
13-14 meeting, according to CME Group's FedWatch tool.
On the data front, a ZEW survey of investor sentiment showed
the mood among German analysts and investors improved more than
expected in October, suggesting traders are more upbeat about
the growth prospects of Europe's biggest economy.
Commerzbank had expected Bund yields to rise on the back of
this, but in fact yields fell on Tuesday.
"It's an encouraging sign that despite the better than
expected outcome the sell-off in Bunds (of recent weeks) hasn't
continued," said Commerzbank analyst David Schnautz.
"The fourth quarter (of the year) has been rough on Bunds,
so maybe it will hold at these levels. But we are still in the
early stages," he said.
For Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Abhinav Ramnarayan; Editing by Nigel
Stephenson and Robin Pomeroy)