Bond Prices Plunge As Ecb Hikes Into 2024, Bringing German Bonds To Multi-Year Lows

They momentarily bet that the ECB would increase its deposit rate to as much as 3.9% in February 2024, according to swap-market pricing. Money market traders were speculating on a high rate of roughly 3.5% in July of this year just a few weeks ago. German bonds fell, with the 10-year note yield reaching its highest level since 2011 and the 30-year bond yield reaching its highest level since 2014.

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A flurry of positive consumer price and economic data from the US has caused an abrupt change, refocusing traders' attention on Europe's persistently high inflation. According to economists surveyed by Trade Algo, data on Thursday will probably show that the core inflation rate in the euro-area remained at a record 5.3% in February. The ECB's policymakers have pledged to continue raising the benchmark rate after bringing it from -0.5% to 2.5% in just seven months, with an inflation target of 2%.

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Gauges of economic activity and core inflation are showing "ongoing resilience in the European economy," according to analysts at Goldman Sachs Group Inc., including George Cole. They predict that 10-year German yields will increase in the upcoming weeks, from 2.57% as of 1:53 p.m., to their projection of 2.75%. Monday in London.

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The Goldman Sachs analysts stated that "the burden is then on lending conditions to enterprises, households, and ongoing wage talks to show that the European economy is truly slowing down sufficiently to bring inflation back near target."

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President Christine Lagarde told India's Economic Times that the ECB is quite likely to move forward with its intention to hike interest rates by 50 basis points when it meets next month. On Thursday, a report on the ECB's most recent rate decision will be released.

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Axel Botte, fixed income strategist at Ostrum Asset Management SA in Paris, said that core inflation at 5% would also be a very good reason for additional tightening. "Any sign of hawkishness in the comments would increase expectations of further tightening," he added.