Markets Begin to React to the Bond Market, ECB's Persistence in Handling Inflation Becomes Attention!


 European zone government bond yields jumped higher on Tuesday as investors focused on the central bank's efforts to fight inflation, ahead of US consumer price data that could bolster expectations for the Federal Reserve's policy outlook.

European Central Bank policymaker Joachim Nagel said on Tuesday at a German banking conference that the central bank cannot back down in the fight against high inflation in the European zone and that a big rate hike is necessary.

Germany's 10-year bond yield, which serves as a benchmark for the region, rose 3 basis points today at 2.35%. The ECB at its last meeting raised interest rates by three-quarters of a percentage point to 1.5% and since then, several top officials, including President Christine Lagarde, have reiterated the central bank's commitment to tackling high consumer price pressures.

In Europe as a whole, consumer inflation grew at a rate of 10%. Data on Tuesday showed that consumer prices rose at a rate of 14.3% in the Netherlands in October, slightly lower than in September, 14.5%,

Money markets show investors currently expect ECB rates to peak around 3% by the end of 2023, compared to 1.5% now. This has increased from closer to 2.8% just a week ago.

Meanwhile, the market-based gauge of medium-term inflation expectations for the European zone rose to a six-month high.

U.S. inflation data to be released on Thursday is expected to show year-on-year increases in the consumer price index moderated to 8% in October, from a rate of 8.2% in September. Meanwhile, core inflation, which excludes food and energy prices, is forecast to rise to 6.5 %, from 6.3% the previous month.

The Fed last week raised US interest rates, which investors expect will remain higher for longer

Finally, following inflation readings, the Dutch 10-year rate rose 4 basis points to 2.64%, while the Italian 10-year bond saw a stable yield of around 4.5%.