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Euro Zone Bond Yields Jump as U.S. Inflation Tops Consensus

Nov 10 (Reuters) - Euro zone bond yields jumped across the board on Wednesday after data showed that U.S. consumer prices rose more than expected last month, reinforcing inflation concerns.

U.S. consumer prices rose 6.2% year-on-year in October in the biggest jump since 1990, above the 5.8% a Reuters poll expected. Core inflation, which strips out volatile food and energy costs, also was higher than expected.

It followed overnight data, which showed Chinese producer prices accelerated more than expected in October.

Those readings added to market concerns that inflation, which has been far above central banks’ targets for months, may be less transitory than expected.

U.S. Treasury yields rose 5 to 10 basis points across the curve.

“Inflation hawks probably aren’t surprised by this,” said Jack Ablin, CIO at Cresset Capital, commenting on the CPI data. “The inflation came in higher than expected, and bond investors need to be compensated for the purchasing power risk”.

Gains in euro area bond yields were less extreme compared to the U.S. but progressively gathered strength.

Germany’s 10-year yield, the euro zone benchmark, was up 5 basis points to -0.247% by 1630 GMT, moving further above the seven-week low of -0.299% touched on Tuesday.

Germany’s 30-year yield, which fell 10 bps on Tuesday and neared negative territory for the first time since August, was up 4.6 bps to 0.059%.

German two-year yields rose 4.8 bps at -0.7%, whereas U.S. two-year yields rose nearly as twice as much, by over 8 bps.

“I think it’s this classic (case) where the euro economy is less aligned with what’s going on in the U.S. and the UK,” said Lyn Graham-Taylor, rates strategist at Rabobank.

“The euro zone has less of an inflation problem than the other two,” he added.

Italy’s 10-year bond yields rose 8.8 basis points to 0.933%, while French, Spanish and Greek bond yields rose 5.7, 7.8 and 5.8 bps respectively.

Wednesday’s sharp moves come after wild swings at the end of October. Yields first surged as money markets boosted wagers on European Central Bank rate hikes next year but fell after the Bank of England did not deliver an anticipated rate increase, moving money markets around the world.

In debt auctions, Germany raised 2.462 billion euros from the re-opening of a 10-year bond.

Receiving less demand than the 3 billion euros Germany targetted, it led to another technical failure -- the third time in a row for a 10-year German auction.

Elsewhere, Portugal raised 1 billion euros from re-opening bonds due 2031 and 2037.

Editing by Timothy Heritage, Bernadette Baum and Giles Elgood

Source: Reuters


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