World stocks rebounded on Wednesday after China's manufacturing activity expanded at the fastest pace in more than a decade, while stronger-than-expected inflation numbers across the euro zone battered government bonds.
Inflation data from German regions, a day after February numbers showed price pressures surged more than expected across France and Spain, stoked fears that the European Central Bank would need to raise rates further.
Germany's 2-year government bond yield , highly sensitive to changes in interest rate expectations, rose to its highest since October 2008 at around 3.20%, and was last up 8 basis points (bps) on the day. Bond yields rise as prices fall.
"The surprises in January inflation releases have challenged hopes for a smooth return to target inflation," said Bruno Schneller, a managing director at INVICO Asset Management.
"Consequently, the risk of policy-driven recessions could rise," he added.
Two-year Treasury yields , a guide to short-term U.S. rate expectations, were close to four-month highs, but at 4.85%, are below a November peak around 4.88%.
The next flush of economic indicators are likely to be crucial as markets gauge whether future rate hikes are sufficiently priced in now.
