LONDON (Reuters) – Most interest rates in the euro area rose to their highs in more than a week on Friday as investors scaled expectations of aggressive US interest rates ahead of a speech by Federal Reserve chairman Jerome Powell later in the day.
FILE PHOTO – A trader looks at his screens on the trading floor of Unicredit Bank downtown on June 13, 2013. REUTERS / Alessandro Garofalo
Two Federal Reserve officials said Thursday they saw no reason to cut interest rates without new ones economic deterioration, a day after the Fed's meeting minutes showed that policy makers disagreed with the cut last month.
Along with slightly improved euro area data and exaggerated positions in global bond markets, which encouraged some sales before Powell speaks, analysts said.
"There has been no news this week, but we have had incrementally less bond-friendly news – the FOMC minutes, euro area PMIs and Fed speakers in recent days giving the impression that July was an insurance rate cut "Said John Davies, G10 Investment Strategist at Standard Chartered Bank.
" This has driven the market away from speculating in a 25 to 50 basis point cut in September to a discussion of a 25 bps cut to "they will cut interest rates ", so a little more uncertainty has been injected into markets. ”
Across the euro area, 10-year bond yields were 2 to 3 basis points higher per day.
Germany's 10-year bond yield rose to -0.603% DE10YT-RR, its highest in just over a week and a half; US 10-year government yields increased by 5 basis points to 1.66% US10YT = RR; and the UK's 10-year gold-plated dividend rose to a three-week high around 0.57% GB10YT = RR.
Powell is to speak during a gathering of central bankers in Jackson Hole, Wyoming, expected at 1400 GMT.
The Fed chief is caught between disagreement in the US central bank over appropriate monetary policy and increasing pressure outside for more interest rate cuts.
As the trend in the bond markets in the euro area increased, Italian interest rates rose lower in the hope that elections in the eurozone's third largest economy could be avoided.
On Thursday, President Sergio Mattarella gave Italy's bickering parties five days to enter into an agreement to resolve a political crisis and avoid elections.
"Since the resignation of (Giuseppe) Conte as prime minister on Tuesday, the over-achievement of BTPs has gained momentum, suggesting that there is hope that a government will be formed and a budget will be in place," Pooja said Kumra, European investment strategist in TD Securities.
"The situation is still difficult, although BTPs still have positive interest rates compared to other European government bonds, so it is supportive."
The 10-year Italian bond yield dipped to around 1.32% IT10YT = RR, near its lowest in almost three years. The gap on German bond yields was reduced to around 190 bps, which is the closest of four weeks DE10IT10 = RR.
Italy's 10-year interest rate gap with Gerrmany – here
Reporting by Dhara Ranasinghe; editing Larry King