Euro zone government bond yields extended their surge on Friday and Italian yields rose above levels touched a day earlier when borrowing costs jumped as the European Central Bank failed to calm markets.
At the meeting President Christine Lagarde disappointed market expectations that she would push back firmly against recent moves in markets, which are pricing in two ECB rate hikes by December 2022 and long-term inflation expectations that are above the ECB’s target.
A Reuters report citing sources following her press conference said policymakers discussed the risk that inflation would remain above the ECB’s target in 2022 and were split about whether it would ease in 2023.
Another report by Bloomberg News citing sources said that Lagarde’s perceived soft market pricing was a result of the ECB governing council advising her to stop short of saying that investor bets on a rate hike are wrong.
Italy’s 10-year yield rose as much as 9 bps to 1.076%, compared to 1.05% on Thursday, and the closely watched spread it pays on top of German equivalents rose to a new high since May at over 117 bps.
Germany’s 10-year yield, the benchmark for the euro area, rose as much as 4 basis points to -0.11%, nearing the -0.10% it rose to on Thursday.