Eurozone government bond yields remained near multi-year highs on Thursday as investors awaited the European Central Bank’s interest-rate decision following an increase in inflation and energy prices.
The ECB is widely expected to raise interest rates by 25 basis points at its Governing Council meeting in Frankfurt, which would take the deposit facility rate to 2.50%.
Germany’s two-year government bond yield, which is sensitive to changes in monetary policy expectations, traded around 3.037%, close to its highest level in two years.
The benchmark German 10-year Bund yield stood at 3.432%, remaining near the 15-year high reached earlier in the week.
Investors were also awaiting updated ECB economic projections and comments from President Christine Lagarde regarding the outlook for monetary policy.
Eurozone Inflation Rises to 3.3%
Expectations for an ECB rate increase have changed since mid-summer, when markets had largely anticipated that interest rates would remain unchanged.
Brent crude was trading above $100 a barrel amid the continuing military conflict in the Persian Gulf, increasing energy costs for European economies that depend on imported energy.
Eurozone inflation increased to 3.3% in August, with the energy component rising 14.3%.
Market participants expect the ECB’s updated staff projections to include higher estimates for medium-term Harmonised Index of Consumer Prices inflation, according to the supplied information.
A 25-basis-point rate increase was fully priced into financial markets, shifting attention towards Lagarde’s press conference for indications about potential subsequent policy decisions.
Investors will be assessing whether the expected September increase is followed by further monetary tightening during the autumn. The ECB has not yet made the September policy decision described in the supplied information.
U.S. CPI Data in Focus Ahead of Federal Reserve Meeting
Outside the eurozone, investors are also awaiting Friday’s U.S. Consumer Price Index report.
The inflation data will follow U.S. nonfarm payroll figures that exceeded expectations in the previous week.
The Federal Reserve is scheduled to hold its next Federal Open Market Committee meeting on 15-16 September.
The U.S. inflation figures could affect market expectations for the Federal Reserve’s interest-rate policy, although the outcome of the meeting remains subject to the central bank’s decision.
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