As traders wait for inflation data, the yield on German 10-year bonds reaches its highest level in 12 years

On Monday, the Eurozone’s bond rates moved higher, with Germany’s 10-year yield hitting its highest level since 2011. Investors were anxiously anticipating upcoming inflation numbers that were expected to have a substantial impact on the European Central Bank’s decisions at the same time as rates spiked.

Following the publication of data showing that German business mood in September outperformed forecasts, although by a small margin compared to the prior month, yield rates increased further. Germany’s 10-year bond yield increased by 4 basis points (bps) to 2.78%, which is a record high since it hit 2.783% in July 2011.

On September 14, the European Central Bank (ECB) increased interest rates to an unheard-of 4%. Although the ECB hinted that its monetary tightening efforts could be coming to an end, it stressed the prospect of more rate rises if inflation rose higher than expected. On Wednesday, the Federal Reserve decided to keep interest rates unchanged at a range of 5.25% to 5.5%, and on Thursday, the Bank of England made the same choice by keeping rates unchanged at 5.25%.

After rising by 4 bp last week, the yield on Germany’s two-year bonds increased only somewhat, rising by 1 bp to settle at 3.263%. The two-year yield’s sensitivity to predictions about interest rates was especially clear. Notably, the Eurozone’s August inflation statistics will be made public on Friday, with several nations releasing their own figures in the days beforehand.

“Inflation data will take center stage this week,” said Florian Spate, Senior Bond Strategist at Generali Investments. “It is becoming evident that the era of rapid and significant rate hikes is drawing to a close,” Spate said. This should therefore indicate that the increasing trend of long-term bond rates has reached its peak.

Only a 20% chance exists, according to market derivatives released on Monday, for the ECB to carry out more rate increases. Italy’s 10-year bond yield jumped by 4 basis points to 4.617%, continuing a previous week’s trend of growth.

After widening to 185 bps the previous week, the carefully watched difference between the 10-year rates on Italian and German bonds showed a little decrease, finishing at 183 bps. A major member of the ECB, Francois Villeroy de Galhau, said on Monday that the possibility of much higher interest rates was improbable and emphasized the need of holding rates until inflation decreased.

ECB President Christine Lagarde, Governing Council member Isabel Schnabel, and Neel Kashkari of the U.S. Fed were all set to speak on the same day. An economist at the British lender Lloyds, Nikesh Sawjani, said that “Markets are likely awaiting confirmation that interest rates in both economies have either reached or closely approached their zeniths.”