Thursday, May 19, 2022

UPDATE 2 The yield on German 10-year bonds is above 0% for the first time since May 2019.

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* The German benchmark gave a positive result for the first time in almost 3 years

* All benchmark yields on 10-year government bonds are now positive globally

* The move reflects the tightening of policy by the ECB, the U.S. Fed (Details, comments added)

January 19 () – German 10-year bond yields rose above 0% for the first time since 2019 on Wednesday, marking a potential turning point for eurozone debt, which has been characterized by negative yields for years due to the central bank’s strong support in the fight against deflationary forces. .

The 10-year yield, which was the benchmark for the entire euro area, rose to 0.025% and rose 3 basis points during the day.

Gareth Hill, manager of the Royal London Asset Management Foundation, called the move above zero a “very significant level” and saw it as a reflection of the European Central Bank’s tightening of policies.

“Crossing this zero barrier is a testament to the path of things that are really high-yielding.”

According to Refinitive, with the move in Germany, all 10-year government bonds are now yielding positive returns globally.

The increase in German earnings reflects record inflation in the eurozone and an economy recovering from the COVID-19 pandemic, allowing the ECB to reduce monetary incentives that have lowered the bloc’s bond yields over the years. The immediate move above 0% comes as eurozone bond markets have pushed their bets from the ECB on a 10 base rate hike through September and are betting on a second rate hike by December.

The stakes run counter to the ECB’s economic forecasts and politicians ’suggestions that the bank will not raise rates this year. They reflect the United States, where investors are betting that the U.S. Federal Reserve could raise rates three more times in March and by the end of the year.

Fed policymakers have also hinted that they could cut the bank’s balance sheet by more than $ 8 trillion by reducing bond holdings.

These concerns have boosted eurozone bond yields, which are inversely related to prices, have been high in recent weeks, Germany’s 10-year yield has risen 40 barrels in the past month, and the U.S. Treasury has watched the move.

As the European Central Bank plans to end its emergency bond purchases in March due to a pandemic, this has led some investors to buy less conventional bonds than expected, which has also led to higher yields.

It is expected that the net supply of bonds issued by eurozone governments will exceed purchases by the ECB for the first time since 2019.

Yields rose in the eurozone’s broader debt market on Wednesday, with Italy’s 10-year yield hitting a record high of 1.453% since June 2020.

According to notes seen by the key manager, the focus has been on selling syndicated debt, Greece has started selling new 10-year bonds and Austria has started selling new seven-year bonds and redistributing bonds for 2040 and 2071.

Interview with Yoruk Bakhcheli, Additional Report by Dhara Ranasinghe; The tour was edited by Chatterjee and Kim Koghill

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