LONDON, Sept 17 (Reuters) - Euro zone government bond yields
reached the highest in over two months on Friday after a report
suggested that the European Central Bank expects to hit its
inflation target by 2025, and even a subsequent partial denial
did not reverse the move.
ECB chief economist Philip Lane revealed in a private
meeting with German economists that the ECB expects to hit its
2% inflation goal by 2025, the Financial Times said on Thursday
in a report that was partly disputed by the bank.
In addition, euro zone inflation for the month of August was
confirmed at a 10-year high of 3%, well above the ECB's target.
Euro zone yields rose broadly on Friday, with Germany's
10-year government bond yield rising to a 10-week
high at -0.265%. It was up 3 bps at -0.28% by 1506 GMT. bps
Other euro zone bond yields were also up 2-3 basis points
and also hitting similar highs in many cases.
"There's a lot of water that needs to flow under the bridge
before we get to 2023, let alone 2025," said Deutsche Bank chief
strategist Jim Reid. "However, if a path to such a number does
appear in their forecasts soon it will impact ECB messaging
going forward, which will be important to markets."
The ECB's response to inflation is currently one of the most
talked-about topics in government bond markets.
The central bank has pumped unprecedented amounts of
stimulus into the COVID-19-hit euro zone economy. But recent
inflation figures have shown a sharp increase towards its goal,
which would normally lead to a tightening of policy.
The central bank has been keen to stress it sees consumer
price rises - such as Friday's euro zone inflation reading - as
temporary and that it would be cautious about withdrawing
stimulus as the bloc recovers from 2020's recession, but
speculation continues to swirl on the subject.
But focus remains on whether inflation may come in higher
than expected. That may be the case if supply constraints
persist and wages are raised during upcoming negotiations, ECB
Vice President Luis de Guindos said on Friday, while Irish
central bank chief Gabriel Makhlouf said there is "considerable
uncertainty about the persistence of price pressures".
On the data front, U.S. consumer sentiment steadied in early
September after plunging in August, though consumers continue to
have a bleak view of the outlook amid a stiff bout of inflation.
Consumer inflation expectations remain elevated, ticking up
to 4.7% for a one-year horizon and steady at 2.9% for a
U.S. yields pushed higher following the data, while German
bond yields were slightly below the 10-week peak hit shortly
before the data release.
(Reporting by Abhinav Ramnarayan, additional reporting by Yoruk
Bahceli; Editing by Catherine Evans, Andrew Cawthorne, William