Sat, Jun 08, 2019 - Page 10 News List

Eurozone nations hit record low yields

MARKET EXPECTATIONS:The drop in bond yields came after the European Central Bank ruled out raising interest rates and opened the door to more monetary stimulus

Reuters, LONDON

Several eurozone countries are seeing their borrowing costs hit their lowest levels on record as the European Central Bank (ECB) opens the door to more stimulus in the face of a faltering European industrial sector and fears of a global recession.

German, Dutch, Spanish, Portuguese, Irish and Cypriot 10-year bond yields all hit record lows within the last two sessions, while the French, Austrian and Finnish equivalents are close to record lows hit in 2016.

The ECB on Thursday ruled out raising interest rates in the next year and even opened the door to cutting them or buying more bonds, as risk factors such as a global trade dispute and Brexit drag the eurozone economy down.

Data released yesterday showed German industrial output and exports dropping sharply by more than expected in April, and the Bundesbank slashed growth projections for the bloc’s largest economy.

Initially, the market actually appeared disappointed by the ECB announcement, with the euro strengthening and yields rising off their lows, but once again, investors are hoovering up eurozone government bonds in anticipation of monetary stimulus.

“It was a bit of a mixed day, but the point is that [ECB President Mario] Draghi emphasized that the ECB can take further measures and global central bank easing speculation remains in charge,” said Commerzbank analyst Michael Leister.

He was also referring to market expectations that the US Federal Reserve would cut rates this year.

“When you look at inflation breakevens you can see the concerns the market has, so even if policymakers says ‘no, no, everything is fine,’ the market is pricing in elevated recession risk,” he added.

On Thursday, German 10-year Bund yields, the benchmark for the region, dropped to a new record low of minus-0.24 percent. Dutch, Irish, Spanish and Portuguese equivalents followed suit, and touched those troughs again yesterday.

Italy is an exception in terms of record lows, but its debt has also benefited massively on stimulus expectations, and yields dropped 6 to 7 basis points yesterday, hitting some of their lowest levels in months.

Employment data from the US was yesterday expected to give some indication of the state of that economy in the face of increased trade tensions with China and Mexico.

“Currently, there are signs of the US economy cooling down, but on the other hand tariffs may have a wages impact, but whether this will be enough to arrest this drop in US Treasury yields, I’m not convinced,” DZ Bank strategist Daniel Lenz said.

Mexican and US officials on Thursday held a second day of talks on trade and migration, with markets rebounding on optimism that a deal could be close, although it was unclear if Mexican pledges to curb migration flows were enough to persuade the Trump administration to postpone tariffs.

This story has been viewed 1575 times.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top