Eurozone bond yields steady after Fed rate cut
Germany’s 10-year yield, the eurozone benchmark, is up 1 basis point to 2.205%
EUROZONE government bond yields remained steady on Thursday (Sep 19), a day after the US Federal Reserve kicked off its easing cycle with a larger-than-usual interest rate cut.
The US central bank also signalled policy moves would be measured till the end of the year.
The Fed lowered its key interest rate by 50 basis points (bps) to the 4.75 to 5 per cent range, when most analysts saw a quarter-point cut as the most likely outcome.
But in flagging that they see only another 50 bps of cuts by the end of 2024, policymakers hinted they might lower rates at a steady pace.
“I think when it comes to yesterday’s meeting, (Fed chair Jerome) Powell was pretty good at delivering a balanced message”, which the market reaction clearly reflected, said Jussi Hiljanen, chief rate strategist at lender SEB Group.
The 50 bps cut was not an emergency measure but rather a way to catch up, and that the Fed would have lowered its rate by 25 bps at the previous meeting if all data had been available at that time, he said.
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“The market reaction reflected that message,” he added.
The size and importance of the US economy means that the Federal Reserve has an outsized influence on financial markets and central banks globally.
Germany’s 10-year yield, the eurozone’s benchmark, was up one bp to 2.205 per cent. The two-year yield, which is more sensitive to changes in interest rate expectations, was down 0.5 bp at 2.256 per cent.
Italy’s 10-year yield was one bp lower at 3.564 per cent, and the gap between Italian and German bund yields was at 135.5 bps.
When it comes to the European Central Bank (ECB), the key thing to follow was whether there would be any change in rhetoric of governing council members after the Fed rate cut, with a deviation from the data-dependent message that they have been adopting for quite a few months, Hiljanen said.
The ECB cut rates for the second time this year last week, and markets are now trying to guess when the next move is coming.
While most bets focused on December, markets are pricing a one-in-three chance of an ECB rate cut next month. REUTERS
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