European Bonds Decline as PMI Data Point to Faster Inflation

  • German 10-year yield rises from near lowest level in a month
  • Greek bonds rise as creditors agree to resume bailout talks

What's Driving European Bonds Markets?

European bonds fell as a gauge of euro-region economic output unexpectedly climbed to the highest level in almost six years, boosting bets for accelerating inflation and a winding down of the European Central Bank’s asset-purchase program.

Benchmark German 10-year bund yields climbed from close to the lowest level in more than a month, while those on similar-maturity French debt increased for a third day as a composite Purchasing Managers’ Index beat economists’ forecasts for a decline in February. Greek bonds rose amid optimism the nation is moving toward an agreement with creditors on continuing a bailout.

“Strong growth data and an energy-driven CPI spike increase the probability that the ECB will start sounding slightly less dovish,” said Marco Valli, the chief euro-area economist at UniCredit Bank AG, referring to consumer-price inflation data due Wednesday. “The debate within the Governing Council on how to tweak the forward guidance is already in full swing and the next step could be the decision to drop the easing bias on the policy rates.”

  • Euro-area composite PMI rises to 56 in Feb. from 54.4 last month and compared with economists’ forecast for decline to 54.3; final annual euro-area CPI due Wednesday, preliminary data showed 1.8% in Jan., highest since Feb. 2014
  • German 10-year yield climbs 2bps to 0.32% after dropping to 0.29% Monday, close to lowest since Jan. 17; two-year yield falls 1bp to minus 0.851% after touching record-low minus 0.867% earlier Tuesday
  • French 10-year yield climbs 4bps to 1.10%
  • EFSF’s plan to sell 39-year bonds also weighs on long-dated securities
  • Greek bonds rally second day as euro-area finance ministers agreed to continue auditor negotiations on bailout program; two-year yield falls 149bps to 7.99%
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