UPDATE 1-German bond yields eye biggest two-day falling streak in months

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Oct 14 (Businesshala) – German bond yields were set for their biggest two-day falling streak in months as the bond market continued to reverse a recent spike in borrowing costs.

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Government bond yields in key developed markets, driven higher over the past month by concerns around inflation and sharp comments from central banks, have fallen sharply since Tuesday as markets started consolidating. Bond yields move inversely to prices.

In the euro zone on Thursday, Germany’s 10-year yield, the benchmark for the bloc, was down 4 basis points -0.17% by 1134 GMT, well below Wednesday’s 5-month high of -0.088%. Was.

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Down 7 bps in the previous two sessions, it was set for its biggest two-day drop since the beginning of July.

The 30-year yield led Thursday’s rally and was set for its biggest two-day drop since the beginning of March, down 11 bps in the past two sessions.

The yield curve continued to flatten after a sharp move on Wednesday and narrowed to the flattest since late August, as measured by the difference between 10- and 30-year yields, at 78 bps.

And Thursday’s yield decline was driven by falling “real” yields on inflation-linked bonds, which outpaced the decline in nominal bond yields. Germany’s 10-year real yield fell 5 basis points to -1.87%, the lowest in a week.

Mizuho rates strategist Peter McCallum said the turnaround in euro zone yields was being driven particularly by moves in the UK government bond market, where investors are betting on a rate hike from the Bank of England through the end of the year. , while there has been a steep decline in yield over a long period of time.

The move suggests that “the market is thinking this will be a policy error, causing growth to be very low and not necessarily having the desired effect on inflation. So it will actually be a hit to demand that is not warranted.” ,” McCallum said.

Investors are closely watching the central bank’s speakers on Thursday, with a focus on monetary policy.

In the euro area, European Central Bank President Christine Lagarde said Europe’s inflation swing is still seen as temporary and that there is no sign yet that the recent surge is being embedded in wages.

And the Bank of England is also in focus, looking at the impact of UK rates on the euro area. Policy maker Silvana Tenrero said that if he thinks these effects will be mitigated he should not raise rates to cope with the increase in inflation due to higher energy prices and semiconductors.

Policymakers at the US Federal Reserve will also focus later in the session after minutes of the bank’s September meeting showed how it could begin to reduce its bond purchases from mid-November.

In the primary market, Ireland raised 1.5 billion euros from bonds in 2031, 2045 and 2050.

Reporting by Yoruk Bahceli; Editing by Toby Chopra and Bernadette Baum

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