UPDATE 2-Euro zone bond yields rise, tracking U.S. Treasuries

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(repetition, adds analyst comment)

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Nov 15 (Businesshala) – Euro zone bond yields rose on Monday, tracking moves in the US Treasury after falling earlier in the session as the focus was on a credit supply crunch that has kept a lid on the bloc’s borrowing costs.

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US Treasury yields held steady as investors weighed against new Treasury supplies this week over concerns about the rising rate of COVID-19 infections and the potential impact of the Federal Reserve reducing its bond purchases.

“US Treasury led the way this afternoon. I think US yields have room to rise to the level of 1.7% close to the macro backdrop,” said Massimiliano Maxia, Senior Fixed Income Specialist at Allianz Global Investors.

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Analysts see a shortage of bonds 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.

That contributed to a fall in bond yields on Friday, including on short-debt paper, even as currency markets priced in 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 1621 GMT, Germany’s 10-year yield, the benchmark for the bloc, rose 1.5 basis points to -0.24%.

Italian bonds continued to underperform and the 10-year yield rose 2.5 basis points to 0.98%. This closely watched spread paid off by 122 bps over German peers.

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 continued to push for calls for tighter monetary policy on Monday and market bets.

ECB vice-president Luis de Guindos said supply constraints and industrial bottlenecks were weighing on euro area growth, while driving inflation higher.

A press report suggested that the European Central Bank buying bonds with an informal limit of less than 50% of each country’s debt issuance – above the current formal limit of 33% – does not trigger any price action. Is. (Reporting by Yoruk Bahcelli and Stefano Rebaudo; Editing by Bernadette Baum)

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