Eurozone bond yields jump after ECB minutes

[FRANKFURT] Eurozone bond yields rose on Thursday (Apr 7) as the European Central Bank's (ECB) March meeting minutes came in more hawkish than expected.

ECB policymakers appeared keen to roll back stimulus at their Mar 10 meeting and argued that conditions for lifting rates had either been met or were about to be met, the accounts of the meeting showed on Thursday.

While policymakers agreed at the meeting to end bond buys some time in the third quarter without making a further commitment to unwinding stimulus, a sizable group wanted to go even further, setting a firm end-date for the purchases.

Eurozone bond yields, which were lower ahead of the minutes, turned course and jumped after the release.

By 1210 GMT, Germany's 10-year yield, the benchmark for the bloc, was up 4 basis points (bps) to 0.69 per cent, the highest in over a week.

Two-year yields, which are sensitive to interest rate expectations, were up 4 bps to 0.01 per cent.

Analysts had expected the minutes to have little impact, given markets already price in 60 bps of rate hikes from the ECB by year-end. Those bets also increased slightly following the minutes.

"It looks like many members wanted an immediate normalisation of policy so it looks like the ECB is emphasising the fight against inflation," said Rene Albrecht, rates strategist at DZ Bank.

"The Bundesbank chief has said that rates need to rise, so markets think the normalisation process could be faster than thought," Albrecht said, referring to comments by German central bank head Joachim Nagel on Wednesday.

Focus was also on a French debt auction, which raised 11.499 billion euros (S$17.1 billion) from the reopening of bonds due 2032 and 2072 and a new bond due 2038.

Demand relative to the amount raised was similar to the previous auctions of the same 10 and 50-year bond.

"The results were fairly average to us, so given the circumstances and the risk events we've got ahead, it's a reasonable enough result," said Peter McCallum, rates strategist at Mizuho in London.

"You could have had dealers who want to add some inventory if clients are looking to buy at a later stage, maybe after the election," he added.

Markets have this week started to acknowledge the possibility of far-right candidate Marine Le Pen winning this month's presidential elections against incumbent Emmanuel Macron.

That sent benchmark French 10-year yields to the highest since 2015 earlier this week and the debt underperformed other peers in the bloc.

Spain also raised 5.57 billion euros in an auction of bonds due 2027, 2029, 2032 and an inflation-linked bond due 2033. REUTERS