Euro area bond yields headed back towards multi-year highs as record high core inflation spurred expectations for further rate hikes, while minutes from the Federal Reserve's last meeting hinted at tighter policy.
Germany's 10-year yield, the benchmark for the euro zone, was up 3 basis points (bps) to 2.545% after hitting its highest level since August 2011 on Wednesday at 2.57%. Yields move inversely to prices.
Euro zone inflation was only a touch higher than earlier estimated in January, Eurostat said on Thursday, confirming that price growth is now well past its peak, even if underlying price pressures still show no signs of abating.
Core inflation, which strips out volatile food and fuel products, accelerated to a record 5.3% from 5.2%, confounding initial data for a steady pace.
"The surprise upward revision to euro-zone core inflation in January, to a new record high, will embolden the majority of ECB policymakers who want to press on with significant further rate hikes," said Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics.
The European Central Bank has raised its main interest rates by 300 bps since July in an attempt to tame inflation and money markets are pricing around another 130 bps of tightening by September.
A key market gauge of long-term inflation expectations hit its highest level since May last year at 2.4518% and has been above 2.4% since late last week.
Germany's 2-year yield, which is sensitive to changes in interest rate expectations, rose 1 bp to 2.928%. It hit its highest level since 2008 on Wednesday at 2.971% and has risen over 50 bps since the middle of January.
Meanwhile, the minutes from the Fed's last policy meeting, released on Wednesday, indicated that curbing unacceptably high inflation would be the "key factor" in how much further U.S. rates need to rise, even as it hiked rates at a slower pace.
Data since the Fed's February meeting has shown a robust labour market and sticky consumer prices, prompting bets it will have to raise rates higher and keep them there for longer.
"The Fed minutes confirmed the view for now of further interest rate hikes," said Sebastian Grupp, analyst at DZ Bank.
Money markets are now pricing in a peak rate of about 5.35% by the Fed's July meeting, or the equivalent of about three more 25 bp hikes from the current range of 4.5%-4.75%.
Italy's 10-year yield was last up 1 bp to 4.469% after hitting a seven-week high of 4.537% on Wednesday. The spread between Italian and German 10-year yields narrowed to 190 bps after hitting its widest level in three weeks on Wednesday.__Reuters
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