Italian yields surge as bets on ECB’s hike quake bonds

Eurozone bond yields sharply surged on Thursday and the Italian 10-year yield breached 4% for the first time since June, but this happened only briefly. Traders continue betting on a jumbo interest rate hike in next week’s ECB monetary policy meeting.

Eurozone money markets on Thursday were discussing the 85% chance for a 75 basis point rate hike, following Wednesday’s record-high inflation print. That is up from a slightly more than 50% chance that was priced in on Wednesday before the inflation reading.

The rise in rate expectations sent government bond yields sharply higher across the EU, particularly at longer 10-year plus maturities.

However, some other economists expect the ECB to hike by 50 basis points next week, with some policymakers concerned about the rising gap between Italian and German bond yields.