BUSINESS

Eurozone yields higher as Yellen supports case for summer rate hike

DHARA RANASINGHE

TAGS: Euro

Eurozone government bonds yields rose on Monday after comments from Federal Reserve Chair Janet Yellen boosted the case for a U.S. interest-rate rise in June or July.

But the upward pressure on yields was limited by expectations that the European Central Bank will maintain its message of ultra-easy monetary policy for the foreseeable future when it meets later this week.

The Fed should raise interest rates "in the coming months" if the economy picks up as expected and jobs continue to be generated, Fed chief Yellen said on Friday.

A generally hawkish tone from Fed speakers this month has prompted markets to reassess the outlook for U.S. rate hikes.

"Yellen is considered one of the mightiest doves at the Fed, so her comments do raise the probability of a hike in the summer although there is some conditionality to that," said Norbert Wuthe, rate strategist at Bayerische Landesbank.

The probability of a rate rise at the Fed's June 14-15 meeting rose to 34 percent from 30 percent before Yellen's remarks, according to CME Group, where the futures contracts are traded.

Bets on a rate increase at the July policy meeting edged up to 60 percent, more than double the estimate from a month ago.

St. Louis Federal Reserve President James Bullard said on Monday global markets appear to be "well-prepared" for a summer rate hike, although he did not specify a date for such a move.

Germany's 10-year Bund yield, the benchmark in Europe, rose 1.6 basis points to 0.16 percent, off an 11-day low hit on Friday at about 0.12 percent.

Other euro zone bond yields were 1-2 bps higher on the day, with this week's supply adding some upward pressure on yields.

Analysts estimate about 25 billion euros worth of bonds will be issued in the euro zone this week.

Still, overall trading was subdued with U.S. and UK markets closed for a holiday.

German bonds, considered to be among the safest assets in the world, were expected to remain supported by unease ahead of the Britain's June 23 referendum on membership of the European Union.

"We are into the last weeks of the Brexit referendum, so we might test 0.12 percent on German Bund yields again," said Wuthe.

[Reuters]

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