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(Updated at 15:40 GMT)
By Stefano Rebaudo
March 27 (Reuters) – Euro zone government bond yields fell on Wednesday as investors awaited inflation data on both sides of the Atlantic, which could provide fresh clues on central banks’ policy stance.
Analysts said the figures are unlikely to replace expectations about the European Central Bank’s (ECB) first rate cut, which is expected in markets in June, but could just be bets on upcoming decisions.
The yield on Germany’s 10-year bond, the bloc’s benchmark, last fell five core issues (bps) to 2. 29%, its lowest point in two weeks.
On Wednesday, Germany’s top economic institutes said they expect the country’s economy to grow by 0. 1% in 2024, cutting its previous forecast to 1. 3%.
Data released on Wednesday also showed Spanish inflation rose 3. 2% in the 12 months to March, just below the 3. 3% expected by analysts polled via Reuters.
More clues on consumer value dynamics are expected in the coming days, with France, Italy and the United States due on Friday, while figures for Germany and the eurozone are due next week.
“While the (inflation) figures are unlikely to dissuade the ECB from cutting rates in June, market expectations for a rate cut of around 90 core issues this year are likely to turn out to be overly optimistic in the end,” said Rainer Guntermann, a strategist at Commerzbank.
The ECB’s euro short-term interest rate (ESTR) futures are fully valued at an ECB rate cut until June and 92 core issues until December 2024.
The road to reducing inflation in Spain may still be fraught with obstacles.
“We think (inflation in Spain) is likely to rise in the coming months due to the underlying effects of energy inflation, higher VAT rates on electricity and food and higher costs for utilities,” said Adrian Prettejohn, Europe economist at Capital. Economics.
“At the same time, hard-working markets recommend that inflation could remain above 2% for the next two years. “
French 10-year government bond yields fell five core issues to 2. 79%, and the spread with the safe-haven Bund briefly hit a fresh four-week high with five core issues. About 43 core broadcasts were made last week.
France’s public sector budget deficit widened more than the government expected last year, according to data released on Tuesday.
Analysts said volatility in France’s spreads was limited on Tuesday as some official figures had already been released and signaled that markets had turned a blind eye to the bloc’s excessive deficits, but that remained an issue to watch.
“Many eurozone countries continue to face fiscal pressures and the upcoming elections pose political uncertainties,” said ING rate strategists led by Padhraic Garvey.
“So we shouldn’t bet entirely on the concept that (yield) spreads will move smoothly in the next rate cut cycle. “
Italy’s 10-year bond yield reduced foundation issuances to 3. 62%.
The spread between Italian and German yields – a measure of the threat premium that investors price for holding government bonds from the eurozone’s most indebted countries – is 130 basis points. In mid-March it reached 115. 40 basis points, the lowest in more than 24 months.
(Reporting by Stefano Rebaudo, Editing by Andrew Heavens, Alex Richardson and Ros Russell)