Euro zone money markets raced to price in a two-thirds chance of a large 75 basis-point European Central Bank rate hike in September on Monday, as policymakers made the case over the weekend for a large move to tame uncomfortably high inflation.
Traders now price in around 67 basis points of rate hikes at the bank’s Sept. 8 policy meeting, meaning they fully price in a 50 basis-point move and a 67 percent chance of a 75 basis-point move.
That compares to a 24 percent chance of the larger move they priced on Friday, before a Reuters report that some policymakers wanted to discuss the bigger move pushed the odds up to 48 percent.
As rate hike bets rose, Germany’s two-year bond yield, sensitive to interest rate expectations, rose 16 basis points to 1.135 percent, the highest since June 22.
Its 10-year yield, the benchmark for the euro area, rose 11 bps on the day to 1.515 percent, its highest in two months.
10-year yields in Italy, among the biggest beneficiaries of ECB stimulus, jumped 18 bps to 3.87 percent, the highest since June 16, pushing the closely-watched spread to German peers to 236 bps, the highest in a month.