European bonds decline as Fed officials signal higher US rates

NEW YORK: European government bonds fell, led by Italian securities, amid speculation the Federal Reserve will raise interest rates more aggressively than investors have been predicting, damping demand for fixed-income assets.

German 10-year bunds, Europe’s benchmark sovereign securities, declined after Chicago Fed President Charles Evans on Tuesday pushed back against traders pricing just a single rate increase by yearend or later. Germany sold 30-year securities at an auction Wednesday that failed to draw enough bids to meet its target. The German government said it plans to keep its target for bond and bill sales unchanged in the second quarter.

Bonds declined “on a number of speeches from officials from the US,” said Gianluca Ziglio, a strategist at Sunrise Brokers LLP in London. It “changes feeling to that Fed may be on the path to hiking rates anyway. The market seems to be caught in the middle,” he said.

Italian 10-year bond yields climbed six basis points to 1.31% at 2:22 pm London time, set for the biggest increase since March 15. The 2% security due in December 2025 fell 5.35 euros per 1,000-euro face amount, to 106.29.