* Eurozone suburban government bond yields tmsnrt.rs/2ii2Bqr
LONDON, Feb 22 (Reuters) – Germany’s benchmark 10-year bond yields climbed to a fresh eight-month high on Monday, as bets on stronger economic growth and inflation in the coming months continue to put pressure on borrowing costs in the region. euro. .
So-called reflex trading was once again led by long-dated US Treasury yields, which on Monday climbed to their highest in about a year.
That set the tone for trading in the European bond market, with the yield on German 10-year Bund rising to -0.28%, a fresh eight-month high. That was up nearly 12 basis points last week, the biggest weekly jump since June.
The sell-off has sharpened Germany’s yield curve, with the gap between 2- and 10-year bond yields widest in nearly a year, at around 39 bps.
“In our view, this is not a buy-on-dip environment in interest rates, and sharp cuts have yet to be carried out,” said analysts at Mizuho in a note.
Perhaps a more worrying sign for policymakers, real or inflation-adjusted bond yields have also risen sharply in the past week. Germany’s 10-year inflation-related yield on Monday rose to -1.28%, the highest since last October.
Analysts at UniCredit say the rise in real yields has gone too far.
“Even general optimism about the global growth prospects will not be enough to justify the current 10-year Bund real rate of return,” they said in a note.
Focus now turns to central bank officials and their thinking about soaring borrowing costs, which could threaten an economy that is slipping into recovery from the coronavirus crisis.
European Central Bank chief Christine Lagarde is expected to speak on Monday evening, while US Federal Reserve Chair Jerome Powell delivers semiannual testimony before Congress on Tuesday.
Most 10-year bond yields in the euro area rose by 2-3 basis points on the day. The yield on Italian 10-year bonds rose 2.5 bps to 0.64%, 22 bps above the record low reached earlier this month.
Europe will decide whether to extend its suspension of rules limiting its budget deficits and debt, known as the Stability and Growth Pact, in the coming weeks, meanwhile Economic Commissioner Paolo Gentiloni said on Monday.
Reporting by Dhara Ranasinghe Editing by Gareth Jones