German bunds under pressure after regional December CPI data

Longer-dated German government bonds were on the backfoot following the release of stronger than expected consumer price data.

As of 1132 GMT, the yield on the benchmark 10-year bund was up by six basis points to 0.25% while that on similarly-dated Gilts was higher by nine basis points at 1.33%.

Consumer price figures from several German Lander released earlier on Tuesday, accounting for roughly half of the national total, pointed to a rise in the nation-wide CPI to a 1.6% year-on-year pace in December, from 0.7% in November, which would be considerably higher than the 1.4% rise which economists had penciled in.

The regional data revelease a surge in prices for liquid fuel, household energy and transportation, Jennifer McKeown, chief European economist at Capital Economics said in a research note sent to clients.

In the same month of 2015 energy and related prices had fallen.

The preliminary estimate of nation-wide German CPI was set for release at 1300 GMT.

Nevertheless, McKeown said that wage growth in Germany remained "pretty subdued", implying that core inflation was unlikely to surge alongside.

Furthermore, price pressures in other parts of the Eurozone remained "much more muted", she added.

Indeed, France´s harmonised CPI, also released on Tuesday morning, had shown prices accelerating from a 0.7% pace in November to 0.8% in December, she pointed out.

"Accordingly, while tomorrow’s euro-zone HICP release will reveal a marked increase in inflation, from 0.6% to 1.2% or so, we doubt that this will lead the ECB to reconsider its policy support. Indeed, a temporary energy-related rise in inflation this year will dent real incomes growth, which is a key reason why we expect the economic recovery to slow."