Eurozone: Government bond yields rose to new multi-year highs

Eurozone government bond yields rose broadly to fresh multi-year highs today as investors expect more rate hikes and the impact of Britain’s supplementary budget continues to weigh on markets.

Yields rose early in the session by 2-5 basis points in most markets with the yield on the German 10-year bond rising temporarily to 2.142%.

The biggest increase was recorded by the yields of the 10-year Italian bonds, which earlier climbed by 8 bp. to 4.6%, while they had briefly reached 4.7% following yesterday’s big rise after the clear majority won by the right-wing coalition led by Georgia Meloni in Sunday’s elections.

The spread between Italian and German bond yields widened to 265 bps. (2.65 percentage points) at the start of the session, before retreating below 250 bps, the highest level since early July.

Markets will be closely watching the European Central Bank’s reaction to the rise in Italian bond yields.

Yesterday, ECB president Christine Lagarde said the bank would not use the new emergency instrument (TPI) to buy bonds from countries making “policy mistakes”, in response to a question about the new Italian government.

Investors were also jittery after a big sell-off in British bonds triggered by tax cuts, which the British government announced on Friday and will be covered by new borrowing.

The prospect of tens of billions more in borrowing has rattled markets and pushed sterling to new record lows.

RES-EMP

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