Italy's 10-year yield set for biggest weekly rise since March 2020

A higher-than-expected euro zone inflation print at 8.1% in May from 7.4% in April, and price pressures continuing to broaden, sent bond yields surging this week, adding to the case for big European Central Bank rate hikes. Benchmark 10-year yields in Italy, among the biggest beneficiaries of ECB stimulus measures as one of the bloc's most indebted states, jumped 41 bps, the biggest weekly jump since March 2020, the height of the hit to financial markets from the COVID-19 pandemic.

Benchmark Italian yields were set for their biggest weekly rise since March 2020 on Friday, as yields surged following inflation data which was much higher than expected earlier in the week, and ahead of a critical ECB policy meeting. A higher-than-expected euro zone inflation print at 8.1% in May from 7.4% in April, and price pressures continuing to broaden, sent bond yields surging this week, adding to the case for big European Central Bank rate hikes.

Benchmark 10-year yields in Italy, among the biggest beneficiaries of ECB stimulus measures as one of the bloc's most indebted states, jumped 41 bps, the biggest weekly jump since March 2020, the height of the hit to financial markets from the COVID-19 pandemic. Germany's 10-year yield, the benchmark for the bloc, jumped 28 bps this week, the biggest weekly increase since March.

"Bunds and BTPs (Italian bonds) are struggling to stabilise," said Michael Leister, head of interest rate strategy at Commerzbank. "Central bank anxiety is looming large as the relentless pressure from the (inflation) path for the coming quarters dominates growth concerns."

But markets calmed on Friday, with trading likely remaining muted with UK traders out for a second day on public holidays. By 0911 GMT, Germany's 10-year yield, the benchmark for the bloc, was up 2 bps to 1.25%, after touching a new high since 2014 at 1.263% in earlier trade.

Italy's 10-year yield was unchanged on the day at 3.31%. Refinitiv prices briefly showed the yield spiking 26 basis points in earlier trade to 3.56%, while moves had been much more modest in other parts of Italy's yield curve. Tradeweb prices showed a similar move.

A trader and an investor said they did not see a specific reason behind the earlier move. The investor, who spoke on condition of anonymity, said the move was likely driven by thin liquidity in cash bonds on Friday, as futures on 10-year BTPs barely moved.

A public holiday in Italy on Thursday also likely dampened trading at the end of the week. Most focus on Friday was on U.S. employment data, which a Reuters poll expects to show the U.S. economy added another 325,000 jobs in May, down from 428,000 in April.

The data comes after U.S. private payrolls increased far less than expected, which would suggest demand for labour was starting to slow amid tightening financial conditions. That release however has a poor track record of predicting the private employment data included in the payrolls release.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)