Italian bonds slide, euro stabilizes as traders focus on ECB hikes
(Bloomberg) – European bonds fell, while the euro stabilized near a five-year low as money markets increased bets on the pace of policy tightening from the European Central Bank.
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Italy’s benchmark 10-year borrowing costs rose six basis points to 2.91%. The euro gained 0.1% to $1.0423. The Bloomberg Dollar Index, which measures the currency against a basket of key counterparties, was little changed.
Governing Council member Francois Villeroy de Galhau, speaking in Paris, renewed his warning that officials should keep an eye on the euro, aware of the impact it could have on consumer prices . Traders confirmed their view that the ECB will raise rates by a quarter point in July and complete two more hikes by the end of the year.
“European inflation will not peak until later this year, so the period of fragile performance for European bonds is likely to extend for a few more months,” said Antoine Bouvet, senior rates strategist at ING Groep NV.
Traders also focused on recession risk as an issue that will complicate the ECB’s ability to rein in inflation and raise rates. In China, industrial production and consumer spending hit the worst levels since the start of the pandemic, reinforcing the rhetoric that the global economy is struggling.
China’s economic activity plummets under Xi’s Covid Zero policy
Data from China “reignites tougher landing scenarios globally,” said George Boubouras, executive director and head of research at K2 Asset Management. “What the markets have to adapt to very quickly is that very clearly in the coming quarter Chinese economic data will be even worse due to the current lockdowns.”
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