European government bonds sold off sharply in recent days, with yields following U.S. Treasurys higher and German borrowing costs hitting their loftiest levels in two years.
Expectations for rising inflation in Europe remain far behind those in the U.S., but they are rising after a jump in producer prices this month. A pickup in vaccination rates is also boosting hopes about a reopening of the region’s economies, according to investors and analysts.
German 10-year yields rose to minus 0.097% on Thursday, up from minus 0.122% on Wednesday and the first time they have been higher than minus 0.1% since May 2019, according to Tradeweb.
German government bonds are now the only negative yielding 10-year government bonds in the eurozone after Dutch yields moved into positive territory on Wednesday.
The rise in European yields this week has been swift, leaving investors caught out by being too comfortable in their view that yields wouldn’t move, especially among southern European countries, according to Alberto Gallo, head of global credit strategies at fund manager Algebris.