* Eurozone Periphery Government Bond Yields tmsnrt.rs/2ii2Bqr (adds analyst comment, background)
MILAN, Oct.6 (Reuters) – Eurozone yields rose as government bond sell-offs continued on Wednesday amid concerns over inflation and the potential tightening of monetary policy, while the German inflation expectations indicator reached its highest level since May 2013.
Oil prices surged, with U.S. crude reaching its highest level since 2014, after the OPEC + producer group stuck to its planned production increase rather than increasing it.
The yield on U.S. Treasuries maturing Oct.21 hit an all-time high at 0.19% as the Republican-Democrat standoff over the debt limit showed no signs of slowing down.
“As the latest rise in inflation expectations is fueled by soaring oil and gas prices, broader factors are emerging,” including fears of global reflation, analysts at Commerzbank said.
The yield on German 10-year government bonds, the block’s benchmark, rose 1.5 basis points, after hitting its highest level since late June at -0.147%.
Italian 10-year government bond yields rose 4 basis points to 0.902%.
The markets stabilized after a previous sharp decline. Commerzbank analysts have suggested that investors should buy Bunds to reduce the risk profile of their portfolio.
European stocks fell more than 1% on concerns over higher inflation, as investors shifted away from high-growth tech stocks to bank stocks.
Germany’s 10-year breakeven point – an indicator of inflation expectations based on the difference in yield between inflation-protected debt and nominal debt of the same maturity – reached its highest level since 2013 at 1 , 74%.
A key market indicator of long-term inflation expectations reached its highest level since November 2014, at 1.868%.
European Central Bank President Christine Lagarde said on Tuesday she still expected supply shortages or rising energy prices to be transient, repeating the bank’s long-held line that the spike in inflation will subside next year.
“The currently high price pressures are a transitory phenomenon is a mantra that has been reiterated time and time again by the ECB. But it seems that even here subtle changes in tone are happening, ”ING analysts said, noting that some board members had expressed concerns about longer lasting effects.
They mentioned recent comments from policymaker Robert Holzmann – “a well-known hawk” – but also from Frenchman François Villeroy de Galhau whose “description of the ECB’s position as ‘vigilant, but not worried’ turned into a ‘vigilant, but not feverish’. “
Villeroy also said on Tuesday that there was still a risk that the ECB would miss its 2% inflation target.
According to Unicredit analysts, the main factors that are pushing up inflation expectations “can be considered temporary”.
“This is confirmed by the fact that the curves of the euro and US dollar inflation swaps are inverted, with 2/10 year spreads trading at around -40 bps and 5/10 year spreads are also inverted,” they said in a research note.
Report by Stefano Rebaudo; Editing by Mark Potter