Euro zone bond yields rise after U.S. retail sales data

Euro zone bond yields rise after U.S. retail sales data

16 May    Finance News, PMN Business, REU

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May 16 (Reuters) –

Euro zone bond yields ticked higher on Tuesday after data showed U.S. retail sales and industrial production rose in April.

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Germany’s 10-year government bond yield, the benchmark of the euro area, was last up 3 basis points (bps) at 2.338%. The yield, which moves inversely to the price, was down around 3 bps before the data.

U.S. retail sales

rose 0.4% last month

, lower than the 0.8% economists expected but up from a 0.7% fall in March.

“The economy remains resilient to the impact of higher interest rates and tightening lending standards,” Andrew Hunter, deputy chief U.S. economist at consultancy Capital Economics, said in a note to clients.

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Sales of so-called core products – a measure which strips out automobiles, gasoline, building materials and food services – rose 0.7%, much higher than the 0.3% increase anticipated.

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Separate data showed that U.S. industrial production

rose more than expected

in April, adding to the upward pressure on U.S. and global bond yields.

The size and importance of the U.S. economy and its financial markets mean that American data typically impacts Europe.

Italy’s 10-year yield was last up 2 bps at 4.212%, having also traded lower before the data.

The gap between 10-year Italian and German bond yields – a gauge of investor sentiment towards the euro zone’s more indebted countries – slipped slightly to 186 bps.

Investors are paying close attention to incoming data as they try to work out whether central banks will keep hiking interest rates in their battles to tame inflation.

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Traders and economists by and large expect the U.S. Federal Reserve to hold rates at their current 5% to 5.25% level.

However,

a poll released by Reuters

on Tuesday showed that economists expect the European Central Bank to raise interest rates by 25 bps at both of its next meeting. That would see the main policy rate peak at 3.75%, from its current 3.25% level.

Germany’s 2-year bond yield, which is sensitive to interest rate expectations, was up 3 bps to 2.671% on Tuesday.

Euro zone bond yields have been trading in a range since falling sharply in March as a banking crisis threatened to take hold in the United States and Europe.

Germany’s 10-year government bond yield is down around 45 bps from an almost 12-year high of 2.77% touched in early March.

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Yet it has risen around 35 bps from its March low as investors have worried that inflation remains too high and more rate hikes are likely.

(Reporting by Harry Robertson and Stefano Rebaudo, editing by Bernadette Baum and Mark Heinrich)

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