Euro zone government bond yields tick up, German inflation falls
Euro zone government bond yields ticked up on Monday as traders mostly ignored Moderna's application for U.S. and EU emergency use for its COVID-19 vaccine and focused on the next moves of the European Central Bank to fight low inflation.Reuters | Washington DC | Updated: 30-11-2020 22:33 IST | Created: 30-11-2020 22:22 IST
Euro zone government bond yields ticked up on Monday as traders mostly ignored Moderna's application for U.S. and EU emergency use for its COVID-19 vaccine and focused on the next moves of the European Central Bank to fight low inflation. German annual consumer prices fell further in November, pushed down by a VAT cut introduced as part of the government's stimulus push to help Europe's largest economy recover from the coronavirus shock.
Consumer prices fell 0.7% year-on-year after shrinking by 0.5% in the previous month, the Federal Statistics Office said. ECB members last week warned about the risks of tolerating a long period of weak inflation.
Germany's 10-year Bund yield was up about 2 bps at -0.570%, after reaching -0.598%, its lowest since Nov. 9. In the peripheral markets, Italian 10-year BTP inched up at 0.584% after briefly touching a record low 0.551%.
The spread between German and Italian yields - essentially the premium Italy pays for its debt - was close to its narrowest for this year, last at 114.9 bps. Portuguese 10-year government bond yields moved further away from zero, last trading at 0.034%. They got close to zero last week, and on some trading platforms broke into negative territory.
"The market tone will continue to be determined by the uneasy balance between hopes of a longer-term resumption of normal activity as vaccines are rolled out and a nearer-term realisation as to the damage currently being caused by the virus," said Lyn Graham-Taylor, fixed income strategist at Rabobank. This week, Germany and France will be tapping the euro zone bond market, according to Rabobank.
Investors will also be looking for the U.S. November jobs report and the ISM indices this week, but ING analysts said that "given lockdowns and curfews kicking in, especially the jobs data, could be old news already". "Sentiment will likely be driven more by the potentially accelerated COVID dynamics after Thanksgiving gatherings," ING analysts said.
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