UPDATE 1-Euro zone bond yields fall, focus on bond scarcity

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Nov 15 (Businesshala) – Euro zone bond yields fell on Monday as the focus on year-end credit supply crunches has kept a lid on the bloc’s borrowing costs.

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Bond yields fell across markets, with US Treasury yields continuing to fall as consumer sentiment hit a 10-year low on Friday.

Analysts continue to focus on bond shortages in the euro area, as issuance declines while demand for safe assets to use as collateral increases. This is seen as holding bond yields while euro area swap rates have risen relative to government bonds.

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That contributed to a fall in bond yields, including short-dated paper, on Friday as well, while the price of currency markets rallied by two full rate hikes from the European Central Bank through the end of 2022.

The bloc’s government bonds, whose yields move inversely to their prices, were also supported by member states moving to implement lockdown measures to curb the spread of the coronavirus, with Germany the latest country to tighten was planning sanctions.

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Danske Bank chief analyst Jens Peter Srensen said the year-end low issuance was lowering bond yields in the bloc as it was outpacing the European Central Bank’s bond purchases.

Sorensen said benchmark issuer Germany was “particularly mismatched”, as it would issue bonds worth €16 billion against €15.5 billion of inflows from matured debt and €25-30 billion of ECB purchases, providing fresh supplies to investors. will be available.

By 1134 GMT, Germany’s 10-year yield, the benchmark for the bloc, fell 1 basis point to -0.26%.

Underperforming Italian bonds outperformed on Friday and the 10-year yield fell 2 bps to 0.94%. This pushed the closely watched spread they pay over its German counterparts up to 120 bps.

Commerzbank analysts said the market should issue around €16 billion this week, but net supply would be positive with some coupon payments and redemptions, Commerzbank analysts said.

European Central Bank President Christine Lagarde said on Monday that persistent supply chain bottlenecks and rising energy costs are slowing euro area growth and will sustain inflation for even longer.

He continued to push for tighter policy calls and market bets by reiterating the ECB’s message that the terms of higher interest rates next year were unlikely to be met as inflation was still seen below the bank’s 2% target. . (Reporting by Yoruk Bahceli; Editing by Toby Chopra and Gareth Jones)

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