German bond yields tick up as U.S. stimulus hopes support markets

Safe-haven German bond yields ticked up in early Friday trade as stimulus hopes in the United States supported global markets. While Euribor interbank rates have come off record lows in recent sessions, analysts expect they will fall back. "The challenge for most bank treasurers should be too much, not too little liquidity, prompting more defensive or no bids at all for deposits," Christoph Rieger, head of rates and credit research at Commerzbank, told clients.

Safe-haven German bond yields ticked up in early Friday trade as stimulus hopes in the United States supported global markets. Democrats in the U.S. House of Representatives are working on a $2.2 trillion coronavirus stimulus package that could be voted on next week, and House Speaker Nancy Pelosi reiterated she is ready to negotiate on it with the White House. That news helped assuage fears this week that recovery from the pandemic could be running out of steam, which shook markets.

"We see core bond markets mainly exposed to (at times erratic) swings in the equity complex and (at times contradictory) news regarding a potential US stimulus package," UniCredit analysts told clients. "U.S. Treasury and Bund markets are likely to continue their seesawing pattern of the past two weeks or so for another few days."

Germany's 10-year yield was up 1 basis point to -0.50% in early trade. They are set to end the week lower as the growing number of coronavirus cases in Europe support demand for safe-haven bonds. More European Central Bank speakers were out on Friday, with Governing Council member Francois Villeroy de Galhau saying the ECB should examine whether the current formulation of its inflation target casts doubt on the ECB's commitment to symmetry.

"We would argue that further central bank speak will have a harder job moving markets going forward," ING analysts said, noting that many ECB speakers have already left the door open for further easing. Investors are pricing about a 90% chance of a full ECB rate cut in July 2021, compared with a full probability earlier in the week.

Money markets are in focus after the latest allotment of the European Central Bank's ultra-cheap TLTRO loans. Analysts expect they will push excess liquidity - commercial bank deposits held at the ECB after accounting for minimum reserve requirements - above 3 trillion euros. Money market rates have sunk to record lows; the amount of excess liquidity leaves little reason for banks to borrow from one another. While Euribor interbank rates have come off record lows in recent sessions, analysts expect they will fall back.

"The challenge for most bank treasurers should be too much, not too little liquidity, prompting more defensive or no bids at all for deposits," Christoph Rieger, head of rates and credit research at Commerzbank, told clients.

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