Eurozone bond yields torn between weak risk appetite and higher for longer rates
EUROZONE bond yields hovered around multiple-week highs on Wednesday (Oct 18), with investors juggling weaker risk appetite, while the release of stronger-than-expected US retail sales boosted expectations of rates remaining high for longer.
The US data released on Tuesday fuelled a bonds sell-off on both sides of the Atlantic. Analysts attributed Wednesday’s yields support still to the data, which could leave the door open to the Federal Reserve to keep rates at current levels.
But risk appetite remains low amid growing tensions in the Middle East, keeping bonds in demand for their safe-haven properties.
Germany’s 10-year yield, the benchmark for the eurozone, fell 0.8 basis point (bps) to at 2.87 per cent, not too far from a 12-day high of 2.90 per cent touched earlier.
Rate sensitive, Germany’s two-year yield was last down 2.6 bps to 3.22 per cent, after earlier climbing to its highest level since late September.
Yields rise as bond prices fall.
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“You could argue that the weaker risk appetite today is supportive but we’re still in an environment where the market is pricing in higher for longer yields,” said Jussi Hiljanen, head of rates strategy at lender SEB.
“Over the past days we’ve seen macro data, especially in the US, that has been stronger than expected and that is supporting the narrative of central banks remaining on hold for longer.”
Italy’s two-year yield rose 1.5 bps to 4.11 per cent, having touched a two-week high earlier.
“After the better than expected employment data, bond bulls were hoping that we could see some weakness in the consumer sector as a justification for long positions,” Mohit Kumar, strategist at Jefferies, told investors in a note.
“Hence, the retail sales data this time was more important than usual.”
US and European yields hit their highest levels in more than a decade at the start of October as central bankers stressed they will hold rates at high levels until inflation is beaten.
In the wake of the attack on Israel by the Palestinian militant group Hamas more than a week ago, yields then fell on rising geopolitical concerns in the region.
Italy’s 10-year bond yields rose 1.6 bps to 4.93 per cent, briefly touching its highest in nine days.
The rise in Italian yields widened the gap between Italian and German 10-year yields to 203.8 bps.
The spread is seen as a sign of investor sentiment towards the eurozone’s more indebted countries, and hit its highest since January earlier this month at 209 bps. REUTERS
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