(updates yield levels, adds details)
October 14 (Businesshala) – German bond yields were set for their biggest two-day fall in months on Thursday as government debt markets continued to reverse a recent spike in borrowing costs.
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, fell to a one-week low of -0.192% and was down 5.6 basis points to -0.185% by 1532 GMT, down from Wednesday’s close of 5. Was. Month high of -0.088%.
Down 8.9 bps in the previous two sessions, it was set for its biggest two-day drop since March 2.
The 30-year yield was down 12.9 bps in the past two sessions, set for its biggest two-day decline since mid-April 2020.
The yield curve remained flat after a sharp move on Wednesday. The gap between the five- and 30-year yields stood at 79.70 bps, the highest since mid-September.
Thursday’s drop in yields 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 6.1 basis points to -1.879%, its lowest in a week.
Italian, French and Spanish 10-year yields all hit their lowest levels since October 5 and were down 6.1, 5.8 and 5.9 basis points, respectively.
Mizuho rates strategist Peter McCallum said the turnaround in euro zone yields was being driven particularly by developments in the UK government bond market, where investors are betting on a rate hike from the Bank of England by 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.
But Dutch central bank chief Klaas Knott said inflation in the bloc could exceed expectations and that outlook for a price hike ends the ECB’s emergency bond purchases next March.
And given the impact of UK rates on the euro area, the BoE is also taking into account. Policy maker Silvana Tenrero said that if he thinks these effects will be short-lived, he should not raise rates to cope with the increase in inflation due to higher energy prices and semiconductors.
Comments from policymakers at the US Federal Reserve are also being scrutinized as minutes of the bank’s September meeting showed how it may begin to reduce its bond purchases from mid-November.
St. Louis Fed Chairman James Bullard said the current high levels of inflation may not subside as soon as many US policymakers expect, and again urged the central bank to accelerate its bond-buying program. did.
In the primary market, Ireland raised 1.5 billion euros from bonds in 2031, 2045 and 2050.