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The yield on the 10-year German bund, arguably the most important financial instrument in Europe, reached the 1% level on Tuesday for the first time in nearly seven years.
The yield
TMBMKDE-10Y,
rose to 1.002% from 0.97% on Monday, and negative territory as recently as early March. It last rose above 1% on June 4, 2015. Prices move in the opposite direction to yields.
Fortunes have changed on expectations the European Central Bank will make its first interest-rate hike of the cycle as early as July, and possibly move rates into positive territory by the end of the year.
Like the U.S., the eurozone has seen a surge in inflation as the economy reopens. The Eurostat statistics agency estimates inflation reached 7.5% year-over-year in April, well above the ECB’s 2% target.
The ECB has further to pressure to act because the U.S. Federal Reserve as well as the Bank of England have already started their rate-hike cycles. That puts pressure on the euro
EURUSD,
making imported energy all the more expensive for European consumers.
