LONDON: Euro zone government bond yields edged lower on Tuesday, retracing some of the previous day’s rise that came on the back of a resumption of concern about inflation, particularly in light of higher oil and gas prices.
Growing investor unease over the escalating tensions between Russia and the West over the weekend pushed up the price of crude oil by more than 3% on Monday, while benchmark European natural gas prices are at one-year highs.
Two top European Central Bank policymakers signalled on Monday they were more worried about the damage that expected new US trade tariffs would do to economic growth in the euro zone than any impact on inflation.
Euro zone yields rise after better than expected data
But the bond market has latched onto the risk of a renewed pickup in price pressures.
A final reading of October harmonised inflation for the European Union later is unlikely to do much to shift expectations for another quarter-point rate cut from the ECB in December.
Right now, markets fully expect a 25-basis point drop in rates next month and are close to pricing in a 20% chance of a 50-bp cut.
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