German 10-year bund yields hit highest since May on strengthening Fed December rate hike hopes

The German 10-year bund yields hit highest since May on Thursday as investors moved away from the safe-haven assets on hopes that Donald Trump's economic policies could boost inflation, granting more space to the Federal Reserve for hiking interest rate in the near future.

Also, market expects that the Federal Reserve will not witness any difficulty from the victory of Republican candidate Donald Trump in hiking interest rate in December, supported by improving economic conditions.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 5 basis points to 0.228 percent, the yield on long-term 30-year note jumped 6 basis points to 0.853 percent and the yield on short-term 2-year bond climbed 1 basis point to -0.644 percent by 09:20 GMT.

The U.S. bond prices dropped on expectations that U.S. President-elect Donald Trump's policies, such as fiscal expansion and protectionism on international trade, will stoke inflation, sending 10-year Treasury yield to the highest in 2016 of 2.040 percent.

Also, investors again revised the outlook for the U.S. interest rates after Donald Trump's victory, with the probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 82 percent.

Trump has indicated he would increase fiscal spending and adopt more protectionist trade policies that could support growth and inflation, analysts said. Rising inflation tends to erode the value of bonds, pushing yields higher, Reuters reported.

Energy prices recovered from previous losses as the U.S. financial markets bounced back from an early Brexit-like slide that followed Donald Trump’s surprise victory in the US presidential election. The International benchmark Brent futures rose 1.08 percent to $46.87 and West Texas Intermediate (WTI) also climbed 0.49 percent to $45.49.

Meanwhile, the German stock index DAX Index traded 0.70 percent higher at 10,720 by 09:30 GMT.