How is its economy Eurozone appears to be sustainable, some of the strongest unions, such as Verdi in Germany, are demanding higher wages and inflation turns persistent, market discounts increase in interest rates euro at historical highs. Thus, bond yields are rising, and their prices tend to wipe out almost all the profits they made in January. Meanwhile, in the US bond market, the picture is similar, despite the difference between the US and Eurozone economies. The reason again is that the largest economy on the planet is showing as much or even more resistance than the eurozone, and inflation in the superpower is still far from its 2% target.

The services sector, vital to the eurozone economy, is on the rise, as evidenced by the latest data released earlier in the week. At the same time, inflation in the euro area is still at 8.5%, despite successive interest rate hikes adopted by the ECB in the second half of last year. So, last week Goldman Sachs, Barclays and Berenberg raised their forecast for interest rates to 3.5%. At the same time, market rates converge on the estimate that by September the ECB will reach the cost of borrowing the eurozone at 3.75%. If these estimates are confirmed, euro interest rates will be at the all-time high they were in 2001, when the ECB was still trying to prop up the value of the recently frozen currency. And, as ECB President Christine Lagarde pointed out a few days ago, the Bank is closely monitoring wage developments, as higher wages for workers could further increase inflationary pressures. Speaking, after all, a few days ago at Bloomberg, Isabelle Schnabel, member of the board of directors. The ECB stressed that “there is a risk that inflation will prove to be much more resilient than markets currently estimate.” At the same time, Frédéric Ducrose, head of macroeconomic research at Pictet Wealth Management, said it is likely that after September interest rates will rise and the cost of borrowing will reach 4%.

International houses are raising interest rate forecasts due to inflationary pressures and growth in the services sector.

The Bank’s concern is fueled by the unions’ insistent demands for higher wages to make up for the loss of their income due to inflation. The German union Verdi is demanding a 10% pay rise for the 2.5 million workers it represents, while the Dutch union FNV is demanding a 16.9% increase for transport workers. Market sentiment automatically puts pressure on the bond market: two-year German government bonds are falling, and the yield reaches 2.95%, the highest level in 14 years. Meanwhile, the US bond market is having a similar reaction, despite the fact that until recently it seemed that the Federal Reserve would move towards a more lenient increase in interest rates and may end this transition to restrictive monetary policy relatively soon. The latest data, however, show that the US economy is on the rise, with the manufacturing and service sectors showing higher-than-expected growth. Thus, they fueled forecasts of a further increase in dollar interest rates. As a result, the yield on 10-year US Treasuries jumped 14 basis points to 3.95% on Tuesday.

Bloomberg’s global bond price index fell 2.9% from early February to Tuesday. This means bonds are likely to lose the full 3.3% gain they posted in January. Worries about inflation dynamics are not limited to the Eurozone and major economies. New Zealand’s central bank was the last to warn of the dangers of high inflation yesterday, when the monetary policy committee announced it was raising its key interest rate by half a percentage point. Confirming economists’ forecasts, its interest rates reached 4.75%, the highest level of any economy in the developed world.