German bond yields suffer biggest two-day drop in months
Bond yields move inversely with prices. On Thursday in the euro area, Germany's 10-year yield, the benchmark for the bloc, fell to a one week low of -0.192% and by 1532 GMT it was down 5.6 basis points at -0.185%, way below Wednesday's near 5-month high of -0.088%.
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 across major developed markets, driven higher over the last month by worries around inflation and hawkish comments from central banks, have fallen sharply since Tuesday as markets started to consolidate. Bond yields move inversely with prices.
On Thursday in the euro area, Germany's 10-year yield, the benchmark for the bloc, fell to a one week low of -0.192% and by 1532 GMT it was down 5.6 basis points at -0.185%, way below Wednesday's near 5-month high of -0.088%. Down 8.9 bps over the last 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 last two sessions, set for its biggest two-day fall since mid-April 2020. The yield curve continued to flatten after a sharp move on Wednesday. The gap between five- and 30-year yields was last at 79.70 bps, the flattest since mid September.
Thursday's drop in yields continued to be driven by falling "real" yields on inflation-linked bonds, which outpaced the fall in nominal bond yields. Germany's 10-year real yield was down 6.1 basis points to -1.879%, the lowest in over a week. Italian, French and Spanish 10-year yields all hit their lowest since Oct. 5 and were last down respectively 6.1, 5.8 and 5.9 bps.
Peter McCallum, rates strategist at Mizuho, noted that moves in euro area yields were being driven by developments in the UK government bond market in particular, where investors are betting on a rate hike from the Bank of England by the end of the year, while long-dated yields have fallen sharply. The moves suggest the "market is thinking that would be a policy error, so that would curtail growth too much and might not necessarily have the desired impact on inflation. So it would really be a hit to demand that isn't warranted," McCallum said.
With the focus on monetary policy, investors are closely watching central bank speakers on Thursday. In the euro area, European Central Bank President Christine Lagarde said Europe's inflation swing is still seen as temporary and there are no signs yet that the recent surge is becoming embedded in wages.
But Dutch central bank chief Klaas Knot said inflation in the bloc could exceed expectations and this outlook for price growth warrants an end to the ECB's emergency bond purchases next March. And given the influence of UK rates on the euro area, the BoE is also in focus. Policymaker Silvana Tenreyro said it should not raise rates to tackle a surge in inflation caused by higher energy prices and semiconductors if it thinks these effects will be short-lived.
Comments from U.S. Federal Reserve policymakers are also under scrutiny after the bank's September meeting minutes showed how it might start reducing its bond purchases from mid-November. St. Louis Fed President James Bullard said the current high levels of inflation may not abate as soon as many U.S. policymakers expect, and again urged the central bank to pursue a faster taper of its bond-buying programme.
In the primary market, Ireland raised 1.5 billion euros from bonds due 2031, 2045 and 2050.
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)