Euro zone yields hold steady at 2-month highs as inflation jumps

Euro area bond yields traded around their highest in about two months on Tuesday, while figures from the eurozone showed inflation accelerated in December, as expected.

Inflation in the 20 nations sharing the euro picked up to 2.4 per cent last month from 2.2 per cent in November, Eurostat said on Tuesday, lifted by more expensive energy and stubbornly high services costs.

This was in line with expectations in a Reuters poll of economists.

Germany’s 10-year bond yield, the benchmark for the eurozone bloc, was up one basis point (bp) at 2.466 per cent, hovering close to its highest in two months.

Yields move inversely to prices.

Inflation expectations also rose among eurozone consumers in November, a separate survey showed on Tuesday, while Monday’s indicator showed a faster-than-expected pickup in German inflation.

This week’s inflation data will be the last before the European Central Bank’s next meeting on Jan. 30.

The jump in inflation has not shifted near-term bets on rate cuts right now and traders price in one 25-bp cut at the January meeting, but it could complicate a kick-start of eurozone growth.

“A fall in inflation below the ECB target appears unlikely in the first half of the year,” said Commerzbank economist Vincent Stamer.

“We do expect the ECB to make four more interest rate cuts this year. But the monetary authorities could act more cautiously in the future despite the weak economy in the eurozone.”

Also in the focus of investors on Tuesday are US JOLTS job opening data and the Institute for Supply Management’s services index for December, published later in the session.