German Bund yields reach one-month high, French, Spanish sell-off continues


Reuters | Updated: 17-03-2020 17:05 IST | Created: 17-03-2020 17:05 IST
German Bund yields reach one-month high, French, Spanish sell-off continues
  • Country:
  • Germany

Germany's benchmark 10-year Bund yield rose to a one-month high on Tuesday on growing expectations of higher government spending to combat the effects of the coronavirus epidemic, and borrowing costs in France and Spain hit their highest since last May. Long-dated German bond yields have risen over 50 basis points from record lows reached just over a week ago -- a move that coincides with signs of a fiscal spending boost from Europe's biggest economy and receding expectations of a rate cut after the European Central Bank left rates unchanged last week.

Germany is ready to take on new debt if necessary to cushion the impact of the coronavirus, Economy Minister Peter Altmaier said on Monday. The comments are the clearest sign yet that Berlin is willing to put an end to its domestically cherished policy of keeping its budget balanced. "The Bund selloff is about some long-term expectations for fiscal policy," said Peter Chatwell, head of rates at Mizuho in London. "It's also about a dramatic scaling back of ECB rate cut expectations, after the ECB meeting last week."

The ECB announced stimulus measures last Thursday but left deeply negative rates unchanged -- prompting markets to rapidly scale back expectations for a near-term reduction Pessimism among German investors slumped in March to levels last seen in the 2008 financial crisis of the coronavirus outbreak, a survey showed on Tuesday.

Germany's 10-year bond yield rose to one-month high at -0.38%. French 10-year bond yields rose to 0.32%, their highest level since May last year. On Friday, the yields were still negative.

France will mobilise 45 billion euros ($50.22 billion) in crisis measures for its companies, with the economy expected to contract 1% this year, Finance Minister Bruno Le Maire said on Tuesday. Just a few weeks ago, France's bond market was benefiting from heightened global volatility. But sentiment has soured as investors bet that dealing with the effects of coronavirus will blow a bigger-than-expected hole in the country's finances.

Analysts added that selling in U.S. and European bond markets had been exacerbated by investors selling the big, liquid assets they hold to make up for losses on other markets. "There is lingering fear that even safe assets are being liquidated to generate cash," said Antoine Bouvet, senior rates strategist at ING.

A selloff continued in peripheral bond markets, hurt by the global rout in risk assets and a comment last week from ECB chief Christine Lagarde on bond spreads. Spain's 10-year bond yield was up 16 bps on the day at 1.01 , rising above the 1% mark for the first time since last May. Portuguese 10-year bond yields held above 1% for a second straight day.

Italian yields reversed early falls and were broadly higher on the day as volatility continued to mark bond market trading.

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

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