Focus on ECB as euro zone bond yields fall after Bank of Japan's move


Devdiscourse News Desk | Updated: 23-01-2019 15:00 IST | Created: 23-01-2019 14:32 IST
Focus on ECB as euro zone bond yields fall after Bank of Japan's move
Investors will also be looking for direction on future monetary policy, and comment on the euro zone's growth outlook when the European Central Bank meets on Thursday.

Most euro zone bond yields fell on Wednesday after the Bank of Japan set the tone for further easing ahead by warning of rising risks to its economy, and ahead of Thursday's European Central Bank meeting. Central bank policy was in focus for investors after the Bank of Japan retained its ultra-easy monetary settings, and pushed backed expectations that it would exit a vast stimulus programme begun in 2013. It cut its inflation forecasts and warned of rising risks to the economy from faltering global demand, a new setback for years of efforts to foster durable growth.

Investors will also be looking for direction on future monetary policy, and comment on the euro zone's growth outlook when the European Central Bank meets on Thursday.

Daniel Lenz, the rates strategist at DZ Bank, said the market was being influenced by political risk from the partial U.S. government shutdown and by worries about a "no-deal" Brexit. "Even more important is whether the world economy suffers a hard or a soft landing, and how much growth rates come down," he added. "We had International Monetary Fund numbers telling us there would be a cooling down of the economy, though not a severe one."

Most euro zone bond yields were around one basis point lower in early trade. The yield on Germany's 10-year government bond, the benchmark for the region, slipped marginally in early trade to around 0.235 per cent, putting it on track for its third straight day of falls this week.

"The ECB will likely acknowledge rising downside risks to the outlook for growth without shifting its policy stance or rate guidance significantly," Florian Hense, the economist at Berenberg Bank, wrote in a note on Wednesday. Money markets are now pricing in a less than 40 per cent chance of a 10 basis point rate hike in 2019.

They are also hoping for guidance on the nature of a successor to the ECB's targeted longer-term refinancing operations (TLTRO). Eurozone consumer confidence figures due to be published later on Wednesday are likely to fall, according to a Reuters poll.

Spain's government bonds were still well bid following its 10 billion euro bond sale, which attracted orders of almost 50 billion euros on Tuesday, a record for any bond sale by Spain, lead managers said. The yield on Spain's 10-year government bond fell by 1.6 basis points to 1.328 per cent. Further supply will also come from Germany, which will auction 4 billion euros of bonds maturing 2024 later on Wednesday.

(With inputs from agencies.)

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