Euro zone bond yields rise ahead of central banks’ meetings

Published On: March 15, 2022Categories: Latest News1.4 min read

Government bond yields have dropped recently as concerns about the economic impact of the conflict dampened risk sentiment and expectations of monetary policy tightening from the ECB

Euro zone government bond yields rose on Monday with investors bracing for the outcome of central banks’ policy meetings due this week, while hopes for progress in peace talks over Ukraine propped up risk appetite.

Ukraine said it had held talks on a ceasefire, immediate withdrawal of troops and security guarantees with Russia on Monday. Tentative optimism lifted European shares and Wall Street equity futures.

Today is mainly about Ukraine. We hear that the negotiations are a bit more constructive, which supported risk sentiment, while investors concentrated more on central banks’ moves, Joost van Leenders, senior investment strategist at Kempen Capital Management, said.

If that situation really improves, the market’s focus will permanently shift back to monetary policy tightening, inflation, and higher yields. Of course, there is a big if about the developments of the war, he added.

Government bond yields have dropped recently as concerns about the economic impact of the conflict dampened risk sentiment and expectations of monetary policy tightening from the European Central Bank.

Germany’s 10-year government bond yield, the euro zone’s benchmark, rose 7.5 bps after hitting its highest since November 2018 at 0.36%.

The five-year yield rose 7 bps to 0.077%, after reaching its highest since February 2018 at 0.104%.

A market gauge of long-term euro zone inflation expectations rose to 2.314%, its highest level since July 2013.

Negative yields look to be a thing of the past, and this ‘leaves the front-end free to discount as hawkish a path as it did in mid-February,’ ING analysts said in a research note.

This is also bad news for peripheral debt markets, with 10Y Italy-Germany set to test 200bp unless the EU decides on a joint fiscal program to counter the crisis, they added.

About the Author: Jonathan Adams

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