Euro zone bond yields rise, eyes on U.S. Treasuries

  • <a href=”http://tmsnrt.rs/2ii2Bqr”>Euro zone periphery govt bond yields</a>

Nov 22 (Reuters) – Euro zone government bond yields rose on Monday as a jump in U.S. yields outweighed the impact of fading risk appetite in Europe on new pandemic lockdowns.

U.S. Treasury 10-year yield rose 5 basis points to 1.58% in London trade, after hawkish remarks by Fed officials late on Friday.

Austria entered its fourth national lockdown after tens of thousands of people, many of them far-right supporters, protested in Vienna against curbs on movement. read more

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Germany’s Health Minister Jens Spahn sought to allay concerns on Monday that the country was running out of BioNTech/Pfizer vaccine shots. read more

ING analysts said: “Covid fears should cap euro bond yields already depressed by collateral scarcity issues. This means Bund yields struggling to rise much above -0.3%, and outperforming Treasuries.”

Increasing demand for bonds to use as collateral going into year-end has also been holding down German bond yields, as there is a limited free float available to purchase.

Federal Reserve Vice Chair Richard Clarida said that it “may very well be appropriate” to discuss speeding up the Fed’s asset purchase wind-down when it next meets in December. read more

The spread between Germany’s and U.S. 10-year bond yields hit its widest since April at 191 bps .

DE-USspread

“Concerns about pandemic-related restrictive measures have taken the lead and dragged yields down,” said Antonella Manganelli, chief investment officer at Payden & Rygel Italy.

“But European fundamentals remain solid, with expectations of positive economic growth coupled with a manageable rise in inflation,” she added.

Germany’s 10-year government bond yield rose 2 basis points to -0.324%, after hitting its lowest levels since mid-September at -0.34% on Friday.

On Friday money markets scaled back bets on next year’s rate hike from the ECB, no longer pricing a complete chance of a 10 basis point rate hike by December 2022, though the probability is still at around 50%.

“The current dynamics could also complicate the ECB’s decision in December given persistent upside inflation and downside growth risks while the pandemic seems to be lasting longer,” Commerzbank analysts said.

A speech from Austria’s central bank chief and Robert Holzmann – one of the hawkish members of the ECB’s board – due at 1400 GMT will be under scrutiny by investors as Austria is now the frontrunner with renewed pandemic restrictions.

Italy’s 10-year government bond yield rose 2.5 basis points to 0.893%.

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Reporting by Stefano Rebaudo, editing by David Evans

Our Standards: The Thomson Reuters Trust Principles.

source: reuters.com