Euro zone bond yields jump after Pfizer news

Germany's benchmark 10-year yield rebounded from September lows on Wednesday as investors shrugged off potential new British COVID measures after BioNTech and Pfizer said a booster of their vaccine had been effective against the Omicron variant in a lab test. Britain could implement tougher COVID-19 measures, including advice to work from home, as early as Thursday, according to media reports.

That initially pushed British government bond yields lower. Bond yields move inversely with prices. But much of the fall in yields reversed after BioNTech and Pfizer said a three-shot course of their COVID-19 vaccine had been shown to generate a neutralising effect against the new Omicron variant in a laboratory test, sending stock markets back higher.

Germany's 10-year yield, the benchmark for the euro area, followed Britain's and first dropped to the lowest since September at -0.409%, but was up 5 bps to -0.32% by 1540 GMT following the vaccine news. Before the vaccine news, Germany's 10-year inflation-linked bond yield dropped to a record low of -2.104% while entire Dutch yield curve turned negative for the first time since February as 30-year yields dropped below 0%.

"Those (Pfizer) headlines started to drive yields higher and it's got a lot of momentum in it," said Peter Chatwell, head of multi-asset strategy at Mizuho, citing low market liquidity due to public holidays in some countries including Italy. "In my mind that's not particularly positive news," Chatwell added.

"All we have been able to eliminate so far is the worst case scenario of full lockdowns but we're still heading very much towards a lockdown-light scenario." The sell-off following the vaccine news accelerated an underperformance in Italian bonds and 10-year yields were up 10 bps to 1.02%. The closely watched gap between Italian and German 10-year yields rose to 134 bps.

Greece's 10-year yield rose to 1.377%, the highest since June 2020. Analysts said investors may be expressing caution in peripheral debt, which benefits the most from European Central Bank stimulus, ahead of a tricky meeting next week, where focus will be on how much debt the bank will buy after its pandemic emergency purchases expire in March.

Lyn Graham-Taylor, rates strategist at Rabobank, said the potential measures in Britain to tackle the Omicron variant, at a time when euro zone states have already implemented restrictions before the variant was even known, warranted caution. It signals that "the ECB is going to have to tread really carefully with regards to what it wants to do with its asset purchase programme".

Inflation in the bloc will take longer to fall back to target, while a new purchase programme won't be needed after March, or an extension would require significant economic damage due to Omicron, ECB policymakers said on Wednesday. And board member Isabel Schnabel said the bank should stick to raising rates shortly after asset purchases end, but may need a backstop to prevent market fragemntation when borrowing costs rise.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)