# German bond yields rise after Schnabel fuels inflation worries
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-18
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: German Bond Yields Rise Amid Inflation Concerns
Meta Description: German bond yields rose after ECB member Isabel Schnabel's comments fuelled inflation concerns. Will interest rates increase next month?
URL: https://financedigest.com/german-bond-yields-rise-after-schnabel-fuels-inflation-worrieshtml

![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-08-18t143702z2lynxmpei7h0oertroptp4eurozone-bonds-hedgefunds-1736815435382-compressed.jpg)

By Stefano Rebaudo

(Reuters) -German bond yields rose on Thursday after European Central Bank board member Isabel Schnabel fuelled inflation concerns by saying consumer prices could still accelerate in the short term.

The inflation outlook for the bloc, where prices rose more than expected to another record high in July, has failed to improve since a rate hike last month, Schnabel said, suggesting she favoured another large interest rate increase next month.

The bloc’s borrowing costs jumped on Wednesday on inflation fears after British price growth hit double digits, shifting [investors’ focus away from recession](https://www.financedigest.com/hotel-investors-should-they-be-worried-about-a-potential-economic-pause-delving-into-inflation-interest-rates-recession-etc.html "‘Hotel Investors – should they be worried about a potential economic pause?’ delving into inflation, interest rates, recession etc") risks that could slow monetary tightening.

By 1440 GMT, Germany’s 10-year government [bond yield](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"), the benchmark for the bloc, was up 2 basis points (bps) to 1.097%, after hitting an almost four-week high of 1.15% in earlier trade.

In mid-June it reached its highest [level since](https://www.financedigest.com/optimism-levels-drop-to-low-of-17-percent-according-to-first-survey-since-banking-regulations.html "Optimism levels drop to low of -17 percent, according to first survey since banking regulations") 2014 at 1.926%, before falling to 0.678% on Aug. 2 as investors [scaled back](https://www.financedigest.com/mifid-ii-why-you-should-not-scale-back-your-implementation-efforts.html "MIFID II: WHY YOU SHOULD NOT SCALE BACK YOUR IMPLEMENTATION EFFORTS") their expectations for ECB rate hikes.

Money [markets are currently fully pricing](https://www.financedigest.com/german-residential-property-market-faces-risk-of-price-drop-diw-study.html "German residential property market faces risk of price drop – DIW study") in a 50 bps ECB move in September and a 40% chance of an additional 25 bps, according to Refinitiv data.

Swap [spreads are rich and are already pricing in significantly more monetary tightening compared to just looking at Bund yields,”](https://www.financedigest.com/german-yields-steady-spreads-tighten-after-recent-repricing.html "German yields steady, spreads tighten after recent repricing") said James Ringer, fund manager at Schroders.

But weak PMI data on Tuesday (next week) showing a deterioration of economic growth, might cap a further [yield rise,”](https://www.financedigest.com/global-equities-gain-as-rising-bond-yields-pressure-gold.html "Global equities gain, as rising bond yields pressure gold") he added.

Moves in [euro zone](https://www.financedigest.com/euro-zone-inflation-eases-in-feb-but-core-prices-pick-up.html "Euro zone inflation eases in Feb but core prices pick up") bonds were in contrast to U.S. Treasuries, where yields fell on Thursday.

[Minutes of the last Fed](https://www.financedigest.com/dollar-jumps-euro-dips-before-fed-minutes.html "Dollar jumps, euro dips before Fed minutes") meeting released on Wednesday showed U.S. central [bank policymakers were committed to raising rates to tame inflation](https://www.financedigest.com/boes-bailey-says-rate-setters-can-put-inflation-before-bank-worries.html "BoE’s Bailey says rate-setters can put inflation before bank worries") – even as they began to acknowledge the risk that they might go too far and curb economic activity too much.

Italy’s 10-year government bond (BTP) yield was last up 1.5 bps to 3.33%, after hitting its highest since July 28 at 3.374%, with the spread between Italian and [German 10-year bond](https://www.financedigest.com/german-bond-yields-give-up-rise-after-u-s-price-data.html "German bond yields give up rise after U.S. price data") (Bund) yields at 222 bps.

The BTP-Bund spread has widened by 15 bps over the last two sessions, in a [move likely to have been exacerbated by thin August](https://www.financedigest.com/divided-bank-of-england-edging-closer-to-raising-interest-rates-but-unlikely-to-move-in-august.html "Divided Bank of England edging closer to raising interest rates, but unlikely to move in August") liquidity.

Citi analysts suggested various drivers behind recent spread widening, including [limited reinvestment flexibility in August for the ECB’s](https://www.financedigest.com/digital-euro-will-be-free-but-limited-in-scope-ecb-says.html "Digital euro will be free but limited in scope, ECB says") pandemic bond programme redemptions, given no core or semi-core government bonds redemptions, and a deteriorating net supply backdrop in September.

The so-called first line of defence against fragmentation – PEPP reinvestments – showed significant support for the bond markets of Italy and [Spain in July](https://www.financedigest.com/in-renewed-push-spain-to-tender-eu-funds-for-evs-batteries-in-july.html "In renewed push, Spain to tender EU funds for EVs, batteries in July") as the ECB skewed reinvestments to these jurisdictions.

Citi analysts said they forecast Italy’s net cash requirement after accounting for coupons, redemptions and ECB flows would be flat in September after faring at negative 16 billion [euros](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") and negative 14 billion euros respectively over the last two months.

(Reporting by Stefano Rebaudo, additional reporting by Yoruk Bahceli; Editing by Catherine Evans and Alex Richardson)


---
This blog is powered by Superblog. Visit https://superblog.ai to know more.
---