German Bonds Set for Best Weekly Performance in 2021

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June 11 Reuters Benchmark German 10year bonds were set for their best week of the year on Friday, as a dovish outcome to the ECB meeting a day earlier continued to support euro area government bond prices.

On Thursday, the European Central Bank maintained an elevated pace of pandemic emergency bond purchases PEPP for the third quarter

Though it upgraded its economic projections for this year and next, underlying inflation is still expected to stay below the ECBs target at least through 2023, suggesting that support will be maintained in the aftermath of the PEPP programme, which expires next year.

Euro area borrowing costs fell to their lowest since late April on Friday in a broader fixed income rally, which also saw U.S. Treasury and UK gilt yields fall. After a brief rise, Treasury yields ignored higherthanexpected May inflation data on Thursday and were set for their biggest weekly fall in a year as investors covered shorts.

Falling another 3 basis points to 0.28 in early Friday trade, Germanys 10year yield, the benchmark for the region, is down over 6 basis points this week in its biggest weekly fall in 2021. Bond yields move inversely with prices.

Southern European bonds, which outperformed following the ECB on Thursday, continued rallying on Friday, with Italys 10year yield down 3 basis points to 0.77, keeping the closelywatched risk premium over German bonds close to onemonth lows at 104 bps.

Now that the next potential taper announcement is pushed to…

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