Economic news

Euro Zone Bond Yields Creep Up as ECB Relief Fades

LONDON, Sept 13 (Reuters) - Government borrowing costs across the euro area were slightly higher on Monday, with relief over a slowdown in the pace of European Central Bank purchases now in the past.

Bond yields across the currency bloc fell sharply, pushing prices up, after the ECB on Thursday trimmed emergency bond buys but said it was not about to close the money taps.

European bond markets were now likely to face fresh headwinds, which would likely take the form of new bond supply and U.S. economic data, analysts said.

Bond issuance in the bloc steps up this week, with ING estimating that supply could reach 30 billion euros from Germany, the Netherlands, Italy, France and Spain. The European Union meanwhile has flagged a syndicated deal for this week.

U.S. consumer price inflation data on Tuesday was another key focus as investors and policy makers try to assess whether a recent rise in price pressures is temporary or a sign of something more sustained.

Any signs that it is the latter could renew talk that the U.S. Federal Reserve may be inclined to dial back its emergency stimulus sooner rather than later.

In early trade, most benchmark bond yields across the currency bloc nudged higher. Germany’s benchmark 10-year Bund yield was at around -0.33%, not far off eight-week highs hit before last week’s ECB meeting.

“U.S. headwinds outweigh the ECB-relief with Bunds back in close proximity of the -0.3% resistance in 10-year yields,” said Commerzbank rates strategist Rainer Guntermann.

“While Bunds fully reversed the post-ECB rally, widening U.S. Treasury-Bund spreads amid souring risk-sentiment suggests that the market starts to fathom what Fed taper might feel like.”

He was referring to the gap between 10-year Bund and Treasury yields which, at around 166.40 basis points , has widened from around 163.90 bps last week.

There appeared to be no immediate reaction in safe-haven bond markets to news that North Korea carried out successful tests of a new long-range cruise missile over the weekend.

(Reporting by Dhara Ranasinghe, Editing by Timothy Heritage)

Source: Reuters


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