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Euro Zone Bond Yields Hold Ground as Markets Calm

Sept 21 (Reuters) - Euro zone bond yields held steady on Tuesday as markets appeared to calm from a sell-off a day earlier driven by fears around Chinese property developer Evergrande’s debt woes and their implications for global growth.

Stock markets and other riskier assets sunk on Monday, driven by fears that Evergrande might default and a commodities sell-off. That boosted safe-haven government bonds, pushing yields - which move inversely with prices - down sharply.

With stock markets stabilizing on Tuesday, euro area bond yields were largely stable.

After falling nearly 4 basis points on Monday, Germany’s 10-year yield, the benchmark for the euro area, was down less than a basis point at -0.32% by 1124 GMT.

The risk premium on Italian bonds, which widened slightly to the highest in a week on Monday at around 104 bps, dipped to around 102 bps on Tuesday, as 10-year Italian bonds outperformed their German peers, with the yield down nearly 2 bps to 0.70%.

“We had to adjust slightly for that Chinese-based risk to be translated into risks more globally, which were perhaps a bit more underpriced before Monday,” said Peter McCallum, rates strategist at Mizuho in London.

“But I think now that risk has been appropriately worked into other markets and I think we’ve reached more of a point of equilibrium at this stage.”

Focus on Tuesday was also on how European Central Bank policymakers are tracking the rise in inflation.

Policymakers still see the recent surge as transitory, but a growing number are acknowledging the risk that inflation may exceed their relatively benign projections, with vice president Louis de Guindos and Greek central bank governor Yannis Stournaras sounding that message on Tuesday.

The bank argues that a spike in inflation this year is transitory, but a report that it expects to hit its inflation target by 2025 drove a bond market sell-off on Friday.

Stournaras also said he expects the ECB to continue buying Greek bonds even after its pandemic emergency purchases end. The bonds are currently ineligible for purchase under the central bank’s conventional bond purchase scheme as they aren’t rated investment grade.

In debt auctions, Germany raised 2.469 billion euros from the re-opening of a seven-year bond, while Finland raised 936 million euros from the re-opening of a 21-year bond.

Germany also updated its funding plan and plans to issue 4 billion euros less debt in the fourth quarter as fewer than expected companies tapped its economic stabilisation fund during the pandemic.

It also plans to issue green bonds in 2022 in a similar amount to this year’s 12.5 billion euros.

($1 = 0.8524 euros)

Reporting by Yoruk Bahceli; Editing by Pravin Char and Emelia Sithole-Matarise

Source: Reuters

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