Eurozone bond yields rise as bearish sentiment persists

Eurozone benchmark 10-year government bond yields went up on Thursday, weighed down by further signals that major central banks will hold interest rates higher for longer.

Minutes from the US Federal Reserve’s July meeting, released late Wednesday, revealed that policymakers were divided on the necessity for additional rate hikes.

The news sent 10-year Treasury yields to their highest level since October, setting the tone for European bond trading.

Germany’s 10-year bond yield was up 5 basis points (bps) on the day to 2.7%, returning to the five-month highs reached earlier this week.

The 10-year bond yield in Italy has risen to 4.40%, its highest level since late May. The carefully watched spread over 10-year German Bund yields slightly reached 175 basis points, the biggest in just over a month.

“We remain cautious,” Commerzbank rates strategist Hauke Siemssen said about the outlook for eurozone bonds.

Even a sell-off in global stock markets, prompted in part by China’s increasing property crisis, failed to support safe-haven government bond markets. This is due in part to the fact that solid US economic data has kept the possibility of more Fed tightening alive, according to analysts.

Meanwhile, this week’s British inflation and salary data have emphasized that the Bank of England may raise interest rates again.