Global bonds gain on US inflation-watch
GLOBAL bonds rallied as traders look to US inflation data for clues on the pace and size of future Federal Reserve interestrate hikes. The yield on 10-year Italian debt fell 11 basis points to 2.89 percent, while 10-year Treasury yields fell as much as 7 basis points to 2.92 percent, extending a drop from a more-than threeyear high less than a week ago.
Traders are looking for signs of easing price pressures in US consumer-price data due later on Wednesday to help gauge whether the Fed’s attempts to get soaring inflation under control are working. Analysts expect the Consumer Price Index to rise an annual 8.1 percent rate in April, compared with 8.5 percent in March, according to the median estimate in a Bloomberg survey.
“Today’s report will help shape the early read into this and has an ability to move markets in a large manner if diverging from consensus too far,” Deutsche Bank AG strategists including Jim Reid wrote in a note.
Larger move
FEDERAL Reserve officials reinforced Chair Jerome Powell ’s message that half-point interest-rate increases are on the table in June and July, but a larger move of 75 basis points could be warranted later in the year.
Hawkish rhetoric from the European Central Bank may pressure debt from peripheral governments in coming weeks, though they’re outperforming now, according to Mohit Kumar, interest rate strategist at Jefferies.
ECB President Christine Lagarde said the first interest-rate increase in more than a decade may follow “weeks” after policy makers conclude net bond-buying. Traders are pricing in about 50 basis points of hikes by September.
Gilts also gained, with the 10-year yield at about 1.80 percent. Markets are pricing just under 75 basis points of rate hikes by September ahead of UK GDP data tomorrow. Bloomberg Economics expects a recovery in the first quarter, followed by a likely a contraction amid a deepening cost-of-living crisis.