# German bond yields give up rise after U.S. price data
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-08-11
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: German Bond Yields Dip After U.S. Inflation Data; Fed Taper
Meta Description: German bond yields fell after U.S. inflation figures met expectations, reducing speculation about Fed tapering. Read more for market insights.
URL: https://financedigest.com/german-bond-yields-give-up-rise-after-u-s-price-datahtml

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By Yoruk Bahceli

(Reuters) – Benchmark German bond yields dipped from near two-week highs on Wednesday after crucial U.S. [inflation figures](https://www.financedigest.com/french-inflation-revised-upwards-in-february-to-7-3-final-figures.html "French inflation revised upwards in February to 7.3% – final figures") came as expected, offering no additional fuel to speculation about when the Fed might taper its bond buying.

The data showed U.S. [consumer price](https://www.financedigest.com/analysis-to-raise-prices-or-not-consumer-goods-makers-weigh-bets-on-buyer-strength.html "Analysis-To raise prices or not? Consumer goods makers weigh bets on buyer strength") increases slowed as forecast, though annual inflation overall remained historically high at 5.4% amid supply-chain disruptions associated with a swift rebound in economic activity.

I think the market had just teed itself up for a bigger number than consensus, which would have fit the narrative from the [Fed speakers we’ve had over the last week](https://www.financedigest.com/wall-st-seen-steady-ahead-of-inflation-data-fed-later-in-week.html "Wall St seen steady ahead of inflation data, Fed later in week") or so,” said Lyn Graham-Taylor, rates strategist at Rabobank, commenting on the dip in yields after the data.

The data followed comments by two U.S. Federal [Reserve officials that inflation](https://www.financedigest.com/oil-prices-dip-on-u-s-crude-reserve-release-inflation-pressure.html "Oil prices dip on U.S. crude reserve release, inflation pressure") was already at levels that satisfy one part of a key test for starting to wind down bond buying.

Fed rate-setters’ comments alongside better-than-expected U.S. jobs [data last Friday halted the sharp fall in yields](https://www.financedigest.com/stocks-yields-fall-data-suggests-u-s-economy-cooling.html "Stocks, yields fall; data suggests U.S. economy cooling") seen in July and the start of August in both the United States and the euro area.

Following the data, Germany’s 10-year yield, the benchmark for the [euro area](https://www.financedigest.com/how-will-the-ecb-contain-fragmentation-risk-in-euro-area-bond-markets.html "How will the ECB contain fragmentation risk in euro area bond markets?"), first dipped and was last unchanged at -0.45% by 1310 GMT. Earlier it had touched the highest since July 29 at -0.435%.

Still, the gap between 10-year German and U.S. Treasury yields widened to 182 bps on Wednesday before the data, the [largest since](https://www.financedigest.com/first-quarter-dash-for-cash-largest-since-early-2020-bofa.html "First quarter ‘dash for cash’ largest since early 2020 -BofA") June, as German bonds continued to outperform U.S. Treasuries this week.

The diverging outlook of the European Central Bank from the Fed, especially after its revision of its [inflation target](https://www.financedigest.com/the-mouse-that-roared-new-zealand-and-the-worlds-2-inflation-target.html "The mouse that roared: New Zealand and the world’s 2% inflation target") will mean it keeps rates lower for longer, has supported euro area government bonds.

Inflation-adjusted “real” yields, often monitored as a gauge of expected financial conditions, have also risen from record [lows in the euro](https://www.financedigest.com/euro-rises-after-spanish-cpi-dollar-slips-towards-8-mth-low.html "Euro rises after Spanish CPI, dollar slips towards 8-mth low") area in recent sessions after driving July’s bond rally.

But their rise has lagged that of U.S. yields and they have fallen [since the start of the week](https://www.financedigest.com/the-nasdaq-100-on-track-to-have-its-best-week-since-march-2010.html "The Nasdaq 100 On Track to Have its Best Week Since March 2010").

We [expect USD rates will rise](https://www.financedigest.com/german-industrial-orders-rise-more-than-expected-in-february.html "German industrial orders rise more than expected in February") much faster from here. With Fed tapering coming into view, the [divergence with ECB](https://www.financedigest.com/stocks-euro-gain-amid-divergent-fed-ecb-rate-hike-outlooks.html "Stocks, euro gain amid divergent Fed, ECB rate hike outlooks") (quantitative easing) policy will become more obvious,” ING analysts told clients.

(Graphic: U.S.-German 10-year [yield spread](https://www.financedigest.com/german-yields-steady-spreads-tighten-after-recent-repricing.html "German yields steady, spreads tighten after recent repricing"), https://fingfx.thomsonreuters.com/gfx/mkt/byprjogrjpe/german%20us%20yield%20gap%20aug%2011.png)

![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/german-us-yield-gap-aug-11-450x211-1736838027017-compressed.jpg)

A market gauge of long-term [euro zone inflation](https://www.financedigest.com/dollar-trims-gains-vs-euro-after-u-s-inflation-data.html "Dollar trims gains vs euro after U.S. inflation data") expectations rose to the highest since July 30 above 1.69%

Southern European bonds underperformed on Wednesday and Italian [bond yields](https://www.financedigest.com/stocks-up-bond-yields-fall-as-markets-mull-a-fed-policy-pause.html "Stocks up, bond yields fall as markets mull a Fed policy pause") were 3 bps higher after rising to the highest since Aug. 3 at 0.599%.

That pushed the closely watched spread with German 10-year yields to 103 bps, a [move analysts attributed to profit taking after the spread fell below 100 bps for the first time](https://www.financedigest.com/move-over-tina-its-time-for-tara.html "Move over TINA, it’s time for TARA") since July 14 on Tuesday.

In the primary market, Germany [raised 3.316 billion euros from the re-opening of a 10-year bond](https://www.financedigest.com/delivery-hero-ramps-up-interest-payments-to-raise-1-billion-euro-convertible-bond.html "Delivery Hero ramps up interest payments to raise 1 billion euro convertible bond") at auction, the bloc’s only auction this week.

(Reporting by Yoruk Bahceli; Editing by Giles Elgood, Kim Coghill and Tomasz Janowski)


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