Bond yields on the rise – Conflicting messages from the ECB on raising interest rates

Bond markets are on a wait-and-see basis as the messages sent by the European Central Bank regarding how much more interest rates should rise are conflicting.

On the one hand, central bankers, members of the bank argue that a further large increase in interest rates could bring unwanted side effects to the European economy.

On the other side are members of the Fed such as Isabel Schnabel who today stated on Twitter that “interest rates will have to rise significantly, as deflation has not yet started”.

The ECB has already raised its interest rates by 3% since last July, when the upward cycle of interest rates began, while its head Christine Lagarde has announced another increase of 0.5% next month.

As the ECB board member mentioned, deflation in the euro zone has not yet started, so according to Schnabel herself “interest rates must reach a fairly restrictive level (…) and stay there until inflation starts to return to the target set by the ECB”.

In HDAT, transactions of 72 million euros were recorded today, of which 40 million euros related to purchase orders.

The yield on the Greek 10-year bond rose to 4.20% from 4.15% yesterday versus 2.36% for the corresponding German bond, bringing the spread to 1.84%.

In the foreign exchange market, the dollar is moving higher against the euro today, as the European currency was trading at $1.0678 in the early afternoon from the level of $1.074 that opened the market.

The indicative euro / dollar exchange rate announced by the European Central Bank was 1.0771 dollars.

RES-EMP

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