Belgium, (Brussels Morning Newspaper) Money markets expect the European Central Bank (ECB) to up interest rates 75 basis points by September.
Markets have upped their bets on ECB’s coming rate hikes, expecting first rises in July at increments of 25 basis points, according to Reuters reporting on Wednesday.
New expectations imply that the EU central bank will increase interest rates by 50 basis points at a meeting slated for September.
Traders have been ramping up their bets on ECB’s rate hikes as inflation in the eurozone is higher and more persistent than the central bank expected.
Rising inflation strengthens the case for more decisive moves by the ECB, with several members of the ECB Governing Council noting that they support an increase of 50 basis points.
“It seemed inevitable to me that 50-basis-point hike bets would become more popular given that the ECB is widely perceived as being behind the curve and other central banks have started to move in 50-basis-point increments as well,” noted Antoine Bouvet, ING financial services corporation’s senior rates strategist.
He noted that the Reserve Bank of Australia upped interest rates by 50 basis points earlier this week in a surprise move.
“The key question ahead of tomorrow is whether the ECB can deliver on hawkish expectations,” he pointed out and added “clearly the April meeting was a puzzling one for markets with rhetoric failing to match market expectations and I suspect the same might be true at this meeting.”
Yields peaked on Tuesday
While bond yields continued on their upward trajectory on Wednesday, they were slightly lower than multi-year highs on Tuesday.
The benchmark for the eurozone, Germany’s 10-year bonds, was up 3 basis points early on Wednesday and yields stood at 1.31% following the eight-year high of 1.343% from Tuesday.
Yield on Italy’s ten-year bonds was up 5 basis points and stood at 3.45% on Wednesday, dropping below the four-year high of 3.55% from Tuesday.
The spread between yields on German and Italian 10-year bonds dropped from 220 basis points earlier this week to 213 on Wednesday.
Germany and Portugal are expected to auction off their 10-year bonds later today.