UPDATE 1-German Bund yield hits fresh 8-month high, reflation prevails

* Bund yield briefly rises to 8-month high

* Real Bund yield highest since Oct

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates to reflect change in price move, adds new quote)

LONDON, Feb 22 (Reuters) – Germany’s benchmark 10-year bond yield briefly rose to a fresh eight-month high on Monday, as bets on stronger economic growth and inflation in the months ahead continued to weigh on major government bond markets across the world.

Most euro area bond yields were steady to a touch lower on the day, but holding near multi-month highs hit recently on growing confidence that more U.S. fiscal stimulus will lift global growth prospects.

Indeed, U.S. Treasury yields on Monday rose to their highest levels in around a year .

Germany’s 10-year Bund yields rose to -0.278%, a fresh eight-month high, before falling back to around -0.31% to stand little changed on the day. It rose almost 12 basis points last week, the biggest weekly jump since June.

That selloff has steepened the German yield curve, with the gap between 2- and 10-year bond yields at its widest in almost a year, at around 39 bps.

“It is understandable why U.S. Treasury yields are rising and are expected to do so,” said Chris Scicluna, head of economic research at Daiwa Capital Markets.

“If you put U.S. fiscal stimulus together with the better trend in vaccinations and coronavirus, that does point to a stronger recovery and a step up in inflation in the U.S. and Europe even if temporary.”


A survey from Germany’s Ifo institute on Monday showed that German business morale rose by far more than expected in February, hitting its highest level since October.

In perhaps a more worrying sign for policy makers, real or inflation-adjusted bond yields have also risen sharply in the past week. Germany’s 10-year inflation-linked yield on Monday rose to -1.28%, its highest since last October.

U.S. real yields rose around 20 bps last week in a sign that the selloff in Treasury markets was broadening out.

“This is a key change, since it questions the credibility of the Fed’s pledge to tolerate inflation overshooting in the future under its Average Inflation Targeting framework,” said AXA Group chief economist Gilles Moec.

Focus was now turning to central bank officials and their thoughts on the jump in borrowing costs, which could threaten to derail economies recovering from the coronavirus crisis.

European Central Bank chief Christine Lagarde is expected to speak later on Monday, while U.S. Federal Reserve Chairman Jerome Powell delivers his semi-annual testimony before Congress on Tuesday.

Elsewhere, Italy’s 10-year bond yield was marginally higher on the day at 0.63%, around 20 bps above record lows hit earlier this month.

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