Eurozone bond yields drop as contagion risk spooks investors

EUROZONE government bond yields dropped on Monday (Mar 20) as risks of a banking crisis spooked investors. This came after UBS sealed a deal to buy Credit Suisse, and some of the world’s largest central banks teamed up to reassure markets.

UBS will pay three billion Swiss francs (S$4.3 billion) for Credit Suisse. The Swiss central bank (SNB) said it would supply substantial liquidity to the merged bank.

The Federal Reserve joined forces with other central banks in a coordinated action to enhance the provision of liquidity through their standing US dollar swap line arrangements. The other central banks include the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and SNB.

German government bond yields hit their lowest since mid-December 2022. The 10-year yield, which is the bloc’s benchmark, was down 15 basis points (bps) to 1.97 per cent, after reaching 1.951 per cent earlier. The spread between Italian and German 10-year yields was last at 201 bps.

Michael Leister, head of interest-rate strategy at Commerzbank, said: “Market perception depends on sentiment as much as on facts, being driven by balance sheet exposures, hedge coverage and real-time deposit (out)flows – which are by and large private information.” REUTERS