The gap between German and U.S. 10-year borrowing costs sat near its narrowest in a month on Thursday as the escalation of fighting in the Gulf sent euro zone yields higher, while cooler inflation data has kept U.S. Treasury yields in check. Germany's 10-year bond yield, the benchmark for the euro zone, was last 1 basis point higher at 3.13%, its highest since May 20. It has risen 9 bps so far this week, and 26 bps in July so far as traders fear the renewed climb in oil and gas prices after fighting resumed between Iran and the U.S. in the Gulf, could push inflation higher and force the European Central Bank to raise rates more aggressively, and also weigh on longer-term economic growth. Markets currently see around a 90% chance of an ECB rate increase by its September meeting - that would be its second this year after June's hike - and a good chance of a third move by year end. In contrast, the 10-year U.S. Treasury yield was last 4.56%, up 2 bps on the day, but flat on the week, and up just 14 bps on the month. The U.S. is less exposed to energy from the Gulf than Europe, and traders have pared back bets on imminent Federal Reserve rate hikes after this week's cooler-than-expected prints for both consumer and producer inflation.India bonds extend recovery tracking rise in U.S. TreasuriesIndian government bonds saw gains for a second straight session on Thursday. This followed overnight increases in U.S. Treasuries after softer economic data emerged. Softer U.S. inflation data eased concerns about an imminent Federal Reserve rate hike. Lower U.S. yields eased pressure on emerging-market debt, helping Indian bonds recover. State-run lenders and foreign investors actively bought bonds, adding support. The gap between German and U.S. 10-year borrowing costs was last 144 bps, roughly its lowest since early June. It was as wide as 157 bps in late June, when European government bonds were rallying on signs oil and gas would resume flowing through the Strait of Hormuz, while traders thought the Fed may need to hike rates soon.
Euro zone yields rise, gap between German and US borrowing costs smallest in a month
German and US borrowing costs are nearing their narrowest gap in a month. Euro zone yields rose due to Gulf fighting, increasing inflation fears. US Treasury yields remained steady after cooler inflation data emerged. Markets anticipate further European Central Bank rate increases this year. The US is less exposed to Gulf energy disruptions than Europe.
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