Eurozone yields fall after ECB official makes case for rate cuts

EUROZONE bond yields fell on Monday (Feb 12) after rising sharply final week, with dovish feedback from a European Central Bank (ECB) official serving to sooth the market.

Germany’s 10-year bond yield, the benchmark for the bloc, was final down 4 foundation factors (bps) at 2.339 per cent. Yields transfer inversely to costs.

The yield rose 15 bps final week after US financial information got here in stronger than anticipated and central bankers pushed again towards traders’ bets for fast rate of interest cuts.

Yet ECB Governing Council member and Bank of Italy chief Fabio Panetta mentioned at a convention on Saturday that “the time for a reversal of the monetary policy stance is fast approaching”, noting that inflation has fallen rapidly and slicing charges late however aggressively may trigger market volatility.

Three bond market strategists mentioned Panetta’s feedback have been seemingly pulling yields decrease, though two others mentioned markets have been naturally rebounding after a sell-off.

“The Panetta comments should be supportive, although he is well-known for his dovish attitude,” mentioned Rainer Guntermann, rate of interest strategist at Commerzbank.

“It seems that there are also other factors at play, possibly like buying interest at year-to-date yield highs.”

In market phrases, doves are central financial institution officers who favour decrease rates of interest whereas hawks want to maintain them greater.

Germany’s two-year bond yield, which is delicate to rate of interest expectations, was down 3 bps at 2.689 per cent after climbing 18 bps final week.

“I would say it is more of a correction given the big repricing we saw since last policy meetings,” mentioned Emmanouil Karimalis, macro charges strategist at UBS.

“Inflation in the US is set to decline further this week and rates might find some near-term support.”

US shopper value index figures are due on Tuesday and are anticipated to point out that headline inflation slowed to three per cent yr on yr in January from 3.3 per cent in December.

ECB chief economist Philip Lane and Bank of Spain governor Pablo Hernandez de Cos are each resulting from communicate on Monday, as is ECB board member Piero Cipollone.

Italy’s 10-year bond yield was final down 7 bps at 3.897 per cent after climbing 16 bps final week.

The intently watched hole between Italy and Germany’s 10-year bond yields tightened to 154 bps.

On Monday, merchants who guess on the path of rates of interest have been anticipating 118 bps of cuts in 2024 from the ECB, up 4 bps from Friday however down sharply from the 145 bps anticipated in the beginning of February.

Strategists at UniCredit mentioned Italy, Germany, France, Spain, Portugal and Greece are anticipated to promote a mixed 37 billion euros (S$53.6 billion) of bonds this week. But they mentioned 42 billion euros of redemptions will seemingly see internet provide flip destructive for the primary time this yr. REUTERS