German 10-year bond yield hits 1% for first time since June 2015

Germany’s benchmark 10-year bond yield hit 1 per cent for the first time since 2015 on Tuesday, as investors braced for interest rates in the United States and Britain to rise this week as major central banks ramp up their fight against high inflation.

Australia’s central bank raised its cash rate by an unexpectedly large 25 basis points (bps) to 0.35 per cent, the first hike in over a decade, and flagged more to come. Germany’s 10-year government bond yield was up 2.5 bps at 0.988 per cent, after rising above 1 per cent to 1.016 per cent.

The meeting of the Federal Reserve’s Open Market Committee (FOMC) ends on Wednesday, while Bank of England (BoE) policymakers will gather on Thursday.

US benchmark 10-year Treasury yields hovered at 3 per cent for a second straight day on Tuesday.

“A Fed’s hawkish surprise involving a 75 basis points hike would mean that German bond yields might rise to 1.25 per cent by the end of this week or early next week,” Rohan Khanna, senior strategist at UBS, said.

Investors will also look at US jobs data due on Thursday for market direction. Italy’s 10-year government bond yield rose 3 bps to its highest since March 2020 of 2.9 per cent.

The spread between Italian and German 10-year bond yields widened one bps to 189.90.

“So far, the widening of spreads has been reasonably orderly however, in case those dynamics become disorderly, we would expect new measures by the ECB to avoid fragmentation,” Fabio Castaldi, senior fixed income strategist at Pictet, said.