Euro Zone Bond Yields Steady, Markets Brace for ECB Week


LONDON, April 19 (Reuters) – Euro zone government bond yields were broadly steady on Monday, with markets largely on hold ahead of this week’s European Central Bank meeting.

New supply, estimated at over 30 billion euros ($36 billion) this week and above the average for the year so far according to Commerzbank, could put some upward pressure on yields.

However, significant moves were likely to be limited before Thursday’s ECB meeting and most 10-year bond yields across the euro area were steady to a touch lower on the day.

The ECB has stepped up the pace of bond buying in its Pandemic Emergency Purchase Programme since the March meeting to contain a rise in borrowing costs that could derail the recovery.

Latest weekly bond buying data are released later on Monday.

Bond markets are watching what the ECB says and does closely amid signs of disagreement among policymakers over the future pace of bond purchases especially once a recovery takes hold.

“(ECB chief Christine) Lagarde should try and steer clear of the debate on the future of PEPP, to avoid showcasing divisions on the governing council,” said Antoine Bouvet, senior rates strategist at ING. “Too many displays of optimism are equally unadvisable, but the outlook has improved in the euro zone, if tentatively.

Stefan Legge, an economist at the University of St Gallen in Switzerland, said that he would be paying attention to what the ECB says about anchoring long-term inflation expectations.

“Right now, the ECB is highlighting that inflation in 2021 is higher because of one-time factors,” he said.

“I’ll be watching what they (policymakers) say about inflation and inflation expectations going forward as recent statements suggest they are willing to be more tolerant of higher inflation.”

Germany’s 10-year Bund yield was little changed at -0.27% , seven basis points below almost one-year highs hit in late February but up 13 bps from six-week lows hit in March.

Italy’s 10-year yield was down 1.6 bps at 0.73%, with the gap over Bund yields back below 100 bps .

In Germany, the Green party said Annalena Baerbock, co-leader of the party will run as its candidate for chancellor at federal elections in September.

A Green chancellor is still only an outside chance after the Sept. 26 federal election, but the party has grown into a formidable force that is just a few points behind Chancellor Angela Merkel’s conservative CDU.

“This is an important one to look out for, as the CDU/CSU’s slump in the polls has put them only a few points ahead of the second-place Greens, so it’s no longer implausible that the next German chancellor could come from the Greens,” Deutsche Bank strategist Jim Reid said in a note.

($1 = 0.8347 euros)

Reporting by Dhara Ranasinghe Editing by Raissa Kasolowsky, Kirsten Donovan

Source: Reuters


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