Euro zone bond yields, European stocks and the euro all rose on Friday after inflation numbers beat expectations for the month of April and data pointed to a brightening economic outlook for the single currency bloc.
European Central Bank chief Mario Draghi struck a cautious note on Thursday, sending yields lower, but numbers out on Friday strengthened the belief that the current ultra-loose policy stance can't last.
Euro zone consumer inflation rose to 1.9% in April, beating forecasts of 1.8%, and close to the European Central Bank's target of just below 2%.
Even more strikingly, the figure after stripping out energy and processed food prices - known in the market as "core inflation" - hit a four-year high of 1.2%, after being stuck in a 0.7-0.9% range for the six months before.
"The ECB has been looking through fluctuations in the headline inflation rate and looking at core inflation - but even that seems to be going in the right way," said DZ Bank strategist Christian Lenk. "The big question is how sustainable this is going to be."
Inflation numbers added impetus to a bond sell off that began early in the session after some positive economic output data from several euro zone countries.
The Spanish gross domestic product numbers released Friday were particular eye-catching. The economy expanded by 0.8% quarter-on-quarter and 3% year-on-year in the January-to- March period, outpacing expectations.
Austria and France also saw their economies expand over the same period, even if the latter figure was slower than expected.
The corresponding figure for Belgium is due out at 1300 GMT, with a Reuters poll suggesting growth of 0.4% over the preceding quarter.
High-grade euro zone bond yields rose 4-5 basis points across the board. The yield on 10-year German debt , the benchmark for the region, was up 5 basis points to 0.35%.
The single currency also strengthened, rising 0.6% against the dollar to $1.093.
The euro zone bank index extended gains to hit its session high, up 0.8%, while the index of the bloc's 50 biggest stocks also surged to the day's high, up 0.2%.
On Thursday, euro zone government bond yields tumbled and the euro hit session lows after European Central Bank chief Mario Draghi said policymakers did not discuss removing the bank's easing bias on monetary policy at Thursday's meeting.
Political concerns have largely kept high-grade euro zone bond yields in check, particularly ongoing French presidential elections and threat of a victory for anti-euro far-right leader Marine Le Pen.
But with centrist Emmanuel Macron taking the lead in Sunday's first round, that possibility has largely decreased, allowing the market to focus on monetary policy rather than politics.
A poll on Thursday had Macron winning the second round on May 7 by 60.5% to 39.5%.
The gap between France and Germany's 10-year borrowing costs - a key measure of French political risk - was steady at 46 bps on Friday, off Monday's lows but well below last Friday's close of 62.5 bps. (Reuters)
Source: www.businessworld.ie