Euro zone bond yields edge down as investors fear second wave of infections


Reuters | Updated: 13-05-2020 17:33 IST | Created: 13-05-2020 15:32 IST
Euro zone bond yields edge down as investors fear second wave of infections
Representative Image Image Credit: Pixabay

Eurozone government bond yields fell on Wednesday, reversing a recent upward trend, as relative optimism about economies re-opening was replaced by caution over the slowness of recovery and the risk of a second wave of coronavirus infections. Although yields have risen somewhat in recent weeks as the spread of the coronavirus slowed in some Asian and European countries and parts of the U.S. economy began to reopen after lockdowns, risk appetite was subdued on Wednesday.

"I think there's a dawning realization that this isn't going to be a V-shaped recovery," Lyn Graham-Taylor, fixed income strategist at Rabobank, said. "People are just taking a second look at the fact that there are still massive restrictions and worries about the resurgence of cases."

Leading U.S. infectious disease expert Anthony Fauci on Tuesday warned lawmakers that a premature lifting of lockdowns could lead to additional coronavirus outbreaks. Fauci's comments hit Wall Street stocks overnight, underlining fragile investor sentiment which has swung between optimism over some easing in lockdowns globally and anxiety about a fresh spike in coronavirus cases.

The German 10-year government bond yield, which had risen around 8 basis points since May 4, changed direction and fell around 3 bps, last at -0.538%, as demand for the safe debt increased. The Italian 10-year government bond yield, which is the proxy for riskier peripheral European bonds, rose in early trading before changing direction, last down 5 bps.

Portuguese, Spanish, and French government bond yields were also down, by around 2 to 3 bps. Italy issued 9 billion euros ($9.75 billion) of government debt. The Italian 7-year yield was the highest placed since June 2019 at 1.53%.

The possibility of European fragmentation remains a cause for concern for investors, as the bloc struggles to co-ordinate its response to the coronavirus, which has hit tourism-dependent southern countries such as Italy and Spain hardest. The European Commission set out guidelines to allow the resumption of tourism so that people may be able to stay in hotels, eat in restaurants or go to beaches safely in the coming months despite the coronavirus pandemic.

The Austrian tourism minister said that the border between Austria and Germany would reopen from mid-June. German bund futures, which hit a 13-day low on Tuesday, edged up again and were last up 0.26%.

Eurozone inflation expectations fell to a nearly seven-week low below 0.87% on Tuesday, according to a key market gauge, after edging lower over the last week. It held near this level on Wednesday. Germany's Chancellor Angela Merkel told lawmakers on Tuesday that Germany must help its European Union neighbors revive their economies after the coronavirus crisis.

"We've heard really similar sentiment from Merkel before and when it comes down to it, it just fails to deliver on any meaningful front," Rabobank's Graham-Taylor said. European Union legal action against Germany over a ruling by the country's top court that targeted the European Central Bank would "would weaken or endanger" the bloc in the long-run, one of Germany's Constitutional Court judges told a newspaper.

U.S. Federal Reserve Chairman Jerome Powell will speak at a webcast event at 1300 GMT. He is expected to comment on the chances of negative U.S. interest rates. ($1 = 0.9228 euros)

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

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