Yields on euro zone government bonds soared in the debt market on Thursday after the European Central Bank (ECB) raised its inflation forecast and prepared for a possible sharp rate hike in September.
Inflation expectations are higher than expected, which worries the markets a lot and explains the rise in long rates, explains AFP Guillaume Truttmann, bond manager at Meeschaert Amilton.
The ECB, which intends to raise key rates in July by 25 basis points, or 0.25 percentage points, sharply raised its inflation forecasts on Thursday until 2024.
For the euro zone, the institution now expects inflation of 6.8% in 2022, which should then settle down to 3.5% in 2023 but remain with 2.1% in 2024, still above its target. 2%.
Consequence: the market now anticipates between 5 and 6 rate increases this year against two a few weeks ago, observes Guillaume Truttmann.
The ECB has warned that if the medium-term inflation outlook persists or deteriorates, a larger rate hike of more than 25 bps will be appropriate at the September meeting.
A rise of 0.5% in September?
By announcing that the September increase would be calibrated according to the evolution of inflation, the ECB leaves the door open for an increase of 50 basis points in September, decrypts Mr. Truttmann.
The ECB also confirmed the end of monetary support measures by ending years of asset purchases on July 1, a prerequisite before raising its rates, which will be the first increase since May 2011.
These announcements were integrated by the market.
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The judgment by the ECB of the purchases of bonds of States in particular peripheral, the most indebted, the most fragile makes that the variations of yields between Germany and Italy progress strongly, underlines the expert.
Around 1:10 p.m. GMT, the German 10-year yield (Bund), considered the strongest, rose 9 basis points to 1.45%. Its French counterpart crossed 2%, a threshold not reached since 2014.
That of Italy of the same luck climbed 24 basis points to 3.61%. In the summer of 2021, it was still 0.50%.
This explosion in borrowing rates will result in an additional cost of indebtedness for States.
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