(Add chart, update prices)

By Abhinav Ramnarayan

LONDON, Oct. 15 (Reuters) – Eurozone government bond markets held steady on Friday after a volatile week in which yields hit their highest levels in months before falling back as investors pulled back. struggling with high inflation figures and concerns about the economic recovery.

Concerns about “stagflation” – a rise in consumer prices without a commensurate increase in economic growth – have left investors perplexed as to whether the high inflation figures will lead to a sharp tightening of monetary policy, in particular. especially in Europe.

As a result, eurozone government bond yields retreated from a five-month high reached earlier in the week. On Friday they were slightly higher overall, but only after two sessions of steep declines.

“This week’s bond rally makes the recent sell-off look more like a break in investors’ love affair with fixed income products than a serious break,” ING analysts said in a statement. note. “Markets are rightly worried about Fed tightening, but we lack the short-term catalyst to raise rates.”

Inflation expectations have skyrocketed in recent weeks, with a key market indicator of long-term euro area inflation, the five-year and five-year inflation swap, hitting a six-year high of 1.8417% this week.

But much of the expectation stems from supply chain disruptions and rising energy prices around the world, suggesting that policymakers may be reluctant to endanger a recovering global economy. sentence of the COVID-19 crisis.

Indeed, the President of the European Central Bank, Christine Lagarde, said on Thursday that the resumption of inflation in Europe was still seen as temporary and that there was no sign that it was still entrenched in the markets. wages.

Meanwhile, in the United States, policymakers remain divided over what to do about inflation.

German government bond yields, after hitting an almost five-month high of -0.08% earlier this week, fell back to -0.17% on Friday, up 1.5bp on the daytime.

The story continues

Other eurozone bond yields were also broadly 1 to 2 basis points higher on the day on the day, but only after falling between 7 and 12 basis points in the previous two sessions.

Later Friday, data on retail sales in the United States is due out, as is the University of Michigan consumer sentiment measure, which has often successfully reported slowdowns in economic activity before they don’t happen.

(Reporting by Abhinav Ramnarayan, editing by Andrew Heavens and Susan Fenton)