Ireland's 10-year bond rate jumps on ECB hike fears 

Goldman Sachs said it expects the ECB to raise interest rates thrice this year, taking the so-called terminal or peak rate to 3.5% 

Last week, ECB President Christine Lagarde reiterated the central bank would keep raising rates to dampen price pressures, repeating the bank's most recent guidance. Picture: Micheal Probst/PA

Eurozone government bond yields rose sharply and the interest rate on the Irish 10-year bond traded over 3%, as economic data bolstered expectations for more aggressive action over interest rates from the European Central Bank (ECB). 

Goldman Sachs said it was expecting the ECB to raise interest rates thrice this year, taking the so-called terminal or peak rate to 3.5% from 3.25% estimated earlier.

In a note, the brokerage said in addition to an increase of 50 basis points in March and 25 basis points in May, it was estimating a 25 basis-point hike in June.

Goldman's change in expectations comes after hawkish commentary from ECB board member Isabel Schnabel and French central bank chief Francois Villeroy de Galhau, two influential policymakers from the 26-member Governing Council. 

Markets currently see ECB rates peaking at around 3.7% by the end of summer. 

Expectations for further interest rate hikes are also being driven by surveys that suggest a brightening outlook for many economies across the eurozone.   

The preliminary purchasing managers' index survey for the eurozone rose to a nine-month high in February, data company S&P Global has said. 

Europe's dominant service sector roared ahead, although manufacturing activity declined. 

Core inflation, the main driver of possible further monetary tightening, “is largely linked to the services sector and a strong labour market, which could amplify wage growth risks,” said Andrzej Szczepaniak, European economist at Nomura. 

Germany's 10-year yield, the benchmark for the single currency, rose to  to over 2.538% in the session, just a few basis points off its highest level since August 2011 of 2.569%.

The bond yield on the Irish 10-year bond traded sharply higher above 3%, while Italy's 10-year bond yield jumped to 4.47%.  

Last week, ECB President Christine Lagarde reiterated the central bank would keep raising rates to dampen price pressures, repeating the bank's most recent guidance.

Then, data showed US producer inflation was higher than expected in January, further bolstering expectations that the US Federal Reserve will push up borrowing costs further.

"We haven't seen as weak a winter as we had thought," said Sophia Salim, European rates strategist at Bank of America. "Energy prices are falling so consumers' purchasing power is improving," Ms Salim said.

Yields received a further boost from survey data from Germany's ZEW institute, which showed the country's investors are increasingly upbeat about global financial markets.

"Taken together, these numbers are now suggesting that the worst is over for the euro zone economy," said chief eurozone economist Claus Vistesen at consultancy Pantheon Macroeconomics.

"I think a soft landing (for the economy) is probably the most likely but the thing that nags at me is that monetary policy acts with a lag," said Chris Iggo, chief investment officer for core investments at Axa Investment Managers. 

"We've seen quite a lot of tightening coming through globally," Mr Iggo said.