LONDON: Euro zone bonds dipped on Friday but calmed after two volatile sessions as a critical US inflation reading that came in line with expectations did little to sway markets ahead of a flurry of central bank meetings next week.
Bond yields fell, then jumped on Wednesday on Britain’s new COVID-19 restrictions and BioNTech and Pfizer saying a booster of their vaccine had been effective against the Omicron variant.
Yields then fell sharply on Thursday, helped in part by a Reuters report that European Central Bank policymakers are homing in on a temporary increase of the bank’s conventional bond purchases after a much larger pandemic-fighting scheme ends in March.
Trading remained calm on Friday as a US November inflation print in line with consensus kept market moves subdued. Consumer prices rose 0.8% month-on-month in November, slowing down from a 0.9% surge in October, while the year-on-year rise at 6.8% was in line with expectations.
Bond yields edged lower following the data, with Germany’s 10-year yield, the benchmark for the euro area, down less than a basis point to -0.35% by 1545 GMT following the data. Antoine Bouvet, senior rates strategist at ING, said that given recent inflation prints that had surprised to the upside, the data may have led some investors to adjust positioning.
But inflation, at the highest since 1982, lends further confirmation to the Fed’s concerns around inflation, Bouvet said. Fed chairman Jerome Powell has said that the bank would consider speeding up the taper of its bond purchases by a few months.
“It seems like after the comments from Powell an acceleration of tapering is pretty much expected,” Bouvet said. Italian yields also fell after the data and the 10-year yield was down 4 bps to 0.96%.
The closely watched gap between Italian and German 10-year dipped to 131 bps, after rising to near the highest in a year at 136 bps on Thursday. Southern European bonds have been hit by volatility ahead of the ECB’s policy meeting given uncertainty ahead of next Thursday’s meeting.
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