UPDATE 1-Euro zone bond yields extend falls; real yields hit record lows

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(Update adds price, comment and ZEW survey)

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LONDON, Nov 9 (Businesshala) – Euro zone bond yields fell on Tuesday, recovering after a fall that began last week, when major central banks pushed back against market expectations for tighter monetary policy.

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German 10-year yields fell last week to their biggest weekly decline since 2012 and other euro area government bond yields hit multi-week lows, as investors slammed the Federal Reserve and the Bank of England following moves Reduce your bets on future interest rate hikes. .

While the move stalled on Monday, it continued on Tuesday, with yields down about 3 to 7 basis points (bps).

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Germany’s 10-year yield hit its lowest since September 23 at -0.287%, while the 30-year yield was down 7 bps at 0.052% at 1218 GMT, its lowest since late August.

Italy’s 10-year bond yield hit a 26-day low of 0.847%. The Italian 30-year yield hit the lowest since September 23 at 1.687%.

Overnight, yields on US 30-year Treasury inflation-protected securities (TIPS) hit a record low.

Germany’s 10-year inflation-linked bond, which reflects the so-called real return, fell to a record low of -2.09%.

Antoine Bouvet, senior rates strategist at ING, said the push by central banks against aggressive pricing of rate hikes helps explain the lower move in real bond yields.

“Developed market central banks throw away the opportunity to prove that they are not behind the curve, so the demand for inflation hedges rises as a result,” he said.

“Whether the inflation fears will be justified or not is a different matter. There is no reason for investors to suspect rising inflation risks in the near term.”

Earlier in the session, a measure of long-term euro area inflation expectations – five-year, five-year forward inflation – rose to a 12-day high of 2.0138%.

On Monday, Philip Lane, chief economist of the European Central Bank, said tightening monetary policy to reduce the current bout of inflation in the euro area would be counterproductive.

But top ECB supervisor Andrea Enria said on Tuesday that lower ECB interest rates are now hurting bank margins.

Investor sentiment in Germany rose unexpectedly in November on hopes that price pressure will ease early next year and growth in Europe’s largest economy will pick up, the ZEW economic sentiment index showed. (Reporting by Elizabeth Howcroft, Additional reporting by Dhara Ranasinghe; Editing by Alex Richardson and Andrei Khalip)


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