European Bond Yields Rise on ECB Tapering Bets

European government bonds fell on investors’ bets that rising inflation could prompt the European Central Bank to weigh scaling back stimulus measures.

The yield on the 10-year German bund edged up Wednesday to minus 0.378%, the highest since mid-July, from August’s low of minus 0.502%. The yield on Italy’s benchmark bonds rose to 0.712%, from its low last month of 0.513%.

Investors are betting that with the region’s economic prospects brightening, the central bank will pare back its purchase of government bonds through a program that was meant to bolster credit markets and growth during the pandemic.

“We could see taper talk coming from the ECB,” said James Athey, an investment manager at Aberdeen Standard Investments. Extending the pandemic emergency purchase program “is hard to justify when growth is strong, inflation is high and unemployment is falling,” he added.

Growth and inflation are showing signs of picking up in the eurozone. A preliminary gauge of the consumer-price index in August hit 3%, exceeding economists’ expectations. Core inflation reached 1.6%, the highest since July 2012, according to Deutsche Bank . Fresh data on Wednesday also showed that unemployment in the euro area also edged down in July.


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