Euro zone bond yields rose slightly on Wednesday as investors digested a fall in inflation in the single-currency bloc, after a sharp drop yesterday on the back of local German and Spanish data.
The year-on-year inflation rate in the euro zone slowed to 10% in November, according to a preliminary reading, down from 10.6% in October and below expectations of a 10.4% figure.
Yet the core inflation rate, which strips out volatile energy and food prices, stayed at a record high of 5%. Germany's 10-year government bond yield , seen as a benchmark for the bloc, was little changed after the data was released and was last up 2 basis points (bps) to 1.933%.
The yield fell 8 bps on Tuesday after German and Spanish inflation data came in below expectations, causing investors to expect a lower euro zone reading on Wednesday. Yields move inversely to prices.
With the headline inflation rate dropping but the core reading staying high, the euro zone data left a lot of questions unanswered, said Mauro Valle, head of fixed income at Generali Investments Partners.
"There is no clear direction," he said. "The (market) sentiment is quite mixed at the moment."
Euro zone bond yields have shot up this year as the European Central Bank (ECB) has raised interest rates to tame inflation, causing investors to demand higher returns on government debt. Germany's 10-year yield started the year at around -0.2% but hit an 11-year high of 2.532% in October.
Economists said signs that inflation is turning a corner could cause the ECB to raise rates by 50 bps in December, after two consecutive 75 bp increases
