Government bonds around the globe were on the back foot on Monday as investors awaited data that will shed light on future interest rate moves.

The US Treasuries market was bracing for two sets of inflation data, the July producer price index and the the July consumer price index. The readings may give an indication of whether the Federal Reserve will resume its tightening campaign.

The ceasefire in the Middle East encouraged some investors who were making safe-haven trades to reverse their positions. As prices fell, the yield on the two-year US Treasury rose 3.8 basis points to 5.016 per cent while the 10-year bond was yielding 5.003 per cent, up 2.8bp.

Eurozone government bonds fell after strong economic growth data sparked fears of further interest rate rises in the region.

Germany, the eurozone’s largest economy, reported stronger-than-expected growth of 0.9 per cent quarter-on-quarter for the second quarter, the fastest rate in five years. The whole eurozone posted a 0.9 per cent quarterly growth, also higher than expectations.

“Overall, the pick-up in eurozone quarterly gross domestic product growth to well above potential, against the backdrop of current elevated inflation readings, will probably further reinforce expectations of an additional 50 basis points of European Central Bank policy tightening in the remainder of this year,” said Martin van Vliet of ING Financial Markets.

In late trading, the yield on the two-year Schatz was up 3.5bp to 3.643 per cent, with the 10-year Bund yielding 4.002 per cent, up 2bp.

UK gilt prices fell after data showed input prices rose by 1.1 per cent last month, higher than forecast.

Investors were nervous about releases expected later in the week, in particular consumer prices data and the minutes of the Bank of England’s August meeting, which resulted in a surprise interest rate rise.

The yield on the two-year gilt added 4bp to 5.018
per cent, and the 10-year gilt was yielding 4.764 per cent, 1.7bp higher.

Japanese government bond prices were also lower on a combination of renewed expectations of a US interest rate rise, higher Japanese equity prices, and comments made on Friday by Toshihiko Fukui, the Bank of Japan governor, that he remained open-minded about the possibility of another interest rate rise this year.

As bond prices fell, the yield on the 10-year rose 4bp to 1.885 per cent.

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