Euro Zone Govt Bonds Steady, Inflation Expectations Hit Low

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LONDON, June 21 Reuters Euro zone government bond yields were broadly steady on Monday, rising by less than one basis point, while a measure of longterm inflation expectations in Europe hit its lowest in three months, as investors adjust to the Feds hawkish shift.

The Fed surprised some investors last week by anticipating two rate hikes in 2023, which prompted U.S. Treasury yields to rise and global markets to turn riskaverse. St. Louis Fed President James Bullard fuelled the market selloff on Friday by saying that it was natural for the Fed to have tilted a little bit more hawkish here to contain inflationary pressures.

The U.S. yield curve, measured as the spread between the U.S. twoyear and 30year Treasury yields, touched its lowest since late January overnight, although by European trading some of this move had reversed, with U.S. Treasuries broadly flat on the day.

Germanys 10year Bund yield edged slightly higher, and stood at 0.197 at 1138 GMT.

Spain and Italys 10year yields were flat while Frances was around 2 bps lower .

But the impact of the Feds move on the euro zone could be seen in a gauge of longterm inflation expectations the fiveyear, fiveyear inflation forward which fell to its lowest since March, at 1.4887.

The gauge had hit its highest since 2018 in May as investors had bet that a combination of central bank stimulus and an economic rebound from the COVID19 pandemic would cause higher inflation the socalled reflation trade.

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