© Reuters
By Joice Alves and Naomi Rovnick
LONDON (Reuters) – Euro zone bond yields rose to their highest in over a decade on Wednesday as U.S. Treasuries led a selloff in debt markets after stronger than expected U.S. job openings data raised prospects of higher interest rates.
The 30-year Treasury yield rose above 5% for the first time since the early days of the global financial crisis in 2007.
Bond yields move inversely to prices.
The German 10-year yield, the euro area’s benchmark, surged to a fresh 12-year high, and was last steady at 2.95%.
Italy’s 10-year government bond yield, the benchmark for the euro area’s periphery, rose to a 11-year high, and was last up 1.9 basis points (bps) at 4.94%.
Analysts said prices were moving in reaction to stronger than expected job openings data pointing to a still-tight labour market. That could compel the Federal Reserve to raise interest rates next month.
“I believe they (euro zone bond yields) are pushed higher by a spike in real yields on both sides of the Atlantic,” said Althea Spinozzi, senior fixed income strategist at Saxo Bank.
The sharp rise in long-term rates suggests traders expect interest rates will remain higher for longer due to the continued resilience of the world’s largest economy.
Germany’s 30-year yield climbed to its highest since August 2011, Italy’s 30-year yield rose to a 10-year high.
Vikram Aggarwal, sovereign bond fund manager at Jupiter, said he expects yields on longer dated Treasuries will continue to rise amid a potential sharp rise in U.S. government borrowing.
“A sharp rise in U.S. government borrowing would cause investors to demand higher yields for holding the longer term debt that the nation funds its spending commitments with”, he said.
In Europe, Spinozzi expects the selloff to continue with Germany’s 10-year yield rising as high as 3.5%.
“That’s bad news for risky assets, and for the periphery. Higher real yields will put pressure on the BTP-Bund spread putting at odds the ECB (European Central Bank) monetary policy”.
The spread between Italian and German 10-year yields was last at 198 bps, after hitting 200 bps on Friday for the first time in six months.
The spread, seen as the risk premium on Italy’s sovereign debt, serves as a gauge of appetite among investors to hold Italian debt. A higher number reflects the size of the premium a bondholder will demand to own Italian bonds rather than German paper.
Policymakers ruling out interest rate cuts in the face of above-target inflation has also put upward pressure on euro zone yields this week, and investors will be closely watching ECB speakers due during the day.