Euro zone bonds rise on market jitters, yields fall
Euro zone bond yields outperform US treasuries
Moves to safe-havens resume as uncertainty persists
Eyes on ECB meeting on Thursday
LONDON, – Euro zone government bond yields dipped on Wednesday, outperforming U.S. Treasuries as risk aversion across assets pushed investors back towards European safe havens.
Germany’s 10-year bond yield was down 4 basis points at 2.505% after hitting 2.479%, its lowest in slightly over a week.
The euro zone benchmark has been a major beneficiary of the recent tariff-induced market turmoil, particularly due to jitters about U.S. Treasuries.
It is trading broadly at the same level as in early March before the announcement of a historic shift in German borrowing and fiscal policy sent the German 10-year yield above 2.9%.
The U.S. 10-year Treasury was little changed at 4.33% on Wednesday, leaving the gap between it and Germany’s 10-year yield wider at 182 bps. That gap was as narrow as 140 bps in early April.
Sentiment across markets slumped as new U.S. curbs on chip sales to China highlighted potential damage in a tit-for-tat global trade war.
U.S. Treasuries traded in a tight range, barely reacting to better-than-expected data on U.S. consumer purchases ahead of a speech by Federal Reserve Chair Jerome Powell.
While moves were not as dramatic last week, shares fell and safe-haven currencies gained as the relative calm of the last few days dissipated, fuelling renewed demand for German debt.
“The stability of euro markets compared to the U.S. may make an attractive safe haven to hedge against global uncertainty,” said analysts at ING in a note.
“As such, we think that Bunds could see healthy demand from global investors in preparation for future turmoil.”
In contrast, ING noted, that U.S. government officials “spooked by recent dynamics … are trying to appease Treasury markets.”
They cited comments by Deputy Treasury Secretary Michael Faulkender on Tuesday that officials were investigating potential changes to the Supplementary Leverage Ratio regulation, which could allow banks to buy more Treasuries.
The European Central Bank meets on Thursday but as markets see a 25 basis point rate cut as all but certain, the focus will be on what policymakers say about tariffs and whether they give any hints about how much further to cut rates.
Germany’s rate-sensitive two-year yield was 3.3 bps lower at 1.74%..
Markets expect the ECB’s main rate to be at 1.66% in December.
Market pricing reflects expectations of two further rate cuts this year, in addition to Thursday’s move, though uncertainty is high given the tariff end point remains unknown.
That means it is hard to project how big a hit euro zone growth will take from tariffs, and the effect on inflation from the resulting lower oil prices, a stronger euro and a possible rise in imports from China if it is shut off from U.S. markets.
China wants to deal with the European Union as a partner instead of a rival, its ambassador to Spain said on Wednesday.
Elsewhere in European rates, Italy’s 10-year yield was down 3.3 basis points at 3.696% and France’s 10-year yield was down 4 bps at 3.265%.
This article was generated from an automated news agency feed without modifications to text.
