UPDATE 1 Eurozone government bond yields extend their rise; British gilts get cold

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(Update prices, add comment and Ifo survey)

LONDON, Sept. 24 (Reuters) – Eurozone government bond yields continued to rise on Friday, with Germany’s benchmark yield hitting its highest level since early July, continuing the sell-off from Thursday after a series of hawkish signals from major central banks.

Germany’s 10-year yield saw its biggest jump since February Thursday, after Norway’s central bank became the first major central bank to tighten policy in the wake of the COVID-19 crisis and the Bank of England said the case for an interest rate hike “appeared to have grown stronger.”

“A week of central bank action has shown us that policymakers are prepared to work to curb the accommodative monetary policies introduced during the pandemic,” ING analysts wrote in a note to clients.

The wait for a stricter central bank policy usually prompts investors to sell government bonds, which means their prices fall and yields rise.

Rabobank rate strategists said the bond market movement was driven by US Treasuries and was due to a “risky” mood in global markets and rising oil prices, as well as the position of the Bank of England.

As of 11:07 GMT, the yield on 10-year German government bonds was up 2 basis points to -0.241%, after declining slightly from the -0.222% reached at the start of the session.

The Italian 10-year yield rose 5 basis points to 0.7773%, its highest since July 8.

On Thursday, UK 2-year gilt yields saw their biggest one-day jump since 2015. The rise continued into early Friday, but eased by noon as the 2-year yield declined by ‘a basis point of 0.38%. , and the 10-year rate stagnated at 0.908%.

The 10-year US Treasury yield broke through the 1.4% level for the first time since mid-July on Thursday, then hit 1.452% during trading hours in Asia. At 11:13 GMT, it was stable at 1.4114%.

“The movement in US rates is coming from the belly of the curve; it has become cheaper and it is a classic bearish build,” said ING.

“This is what you would expect as a curve begins to position itself for a future rate hike, but not imminent.”

The US Federal Reserve took a hawkish tilt at its meeting on Wednesday, saying it would likely start cutting back on its monthly bond purchases soon.

Sources also said that several policymakers at the European Central Bank expect higher inflation and see a case to end its emergency bond buying program in March.

But the ECB is still seen as more accommodating than its peers. ECB President Christine Lagarde has said many of the factors behind a recent surge in euro area inflation are temporary.

German business morale fell for the third consecutive month in September, hit by a “bottleneck recession” for manufacturers, according to a survey.

Investors will also follow the German federal elections on Sunday. (Reporting by Elizabeth Howcroft; Editing by Hugh Lawson and Louise Heavens)


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