(Adds euro zone inflation data, graphic, updates prices)<\/p>\n
LONDON, Sept 17 (Reuters) – Euro zone government bond yields reached two-month highs on Friday after a report suggested that the European Central Bank expects to hit its inflation target by 2025, and even a subsequent partial denial did not reverse the move.<\/p>\n
ECB chief economist Philip Lane revealed in a private meeting with German economists that the ECB expects to hit its 2% inflation goal by 2025, the Financial Times said on Thursday in a report that was partly disputed by the bank.<\/p>\n
In addition, euro zone inflation for the month of August was confirmed at a 10-year high of 3%, well above the ECB\u2019s target.<\/p>\n
Euro zone yields were broadly higher on Friday, with Germany\u2019s 10-year government bond yield rising 3.5 bps at one point to a new two-month high of -0.277%. It was at -0.283% at 0950 GMT.<\/p>\n
\u201cThere\u2019s a lot of water that needs to flow under the bridge before we get to 2023, let alone 2025,\u201d said Deutsche Bank chief strategist Jim Reid. \u201cHowever, if a path to such a number does appear in their forecasts soon it will impact ECB messaging going forward, which will be important to markets.\u201d<\/p>\n
The ECB\u2019s response to inflation is currently one of the most talked-about topics in government bond markets.<\/p>\n
The central bank has pumped unprecedented amounts of stimulus into the COVID-19-hit euro zone economy. But recent inflation figures have shown a sharp increase towards its goal, which would normally lead to a tightening of policy.<\/p>\n
The central bank has been keen to stress it sees consumer price rises – such as Friday\u2019s euro zone inflation reading – as temporary and that it would be cautious about withdrawing stimulus as the bloc recovers from 2020\u2019s recession, but speculation continues to swirl on the subject.<\/p>\n
Other euro zone bond yields were also up 1-3 basis points and also hitting two-month highs in many cases.<\/p>\n
Later on Friday, the University of Michigan\u2019s sentiment index will give a flavour of consumer sentiment in the United States following strong upside surprises in the Philadelphia Fed business outlook survey and U.S. retail sales on Thursday.<\/p>\n
U.S. Treasuries remained more or less unchanged on Friday, with 10-year yields flat at 1.33%.<\/p>\n