Eurozone bond yields rise, all eyes on central banks

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December 14 (Reuters) – Eurozone government bond yields were mostly higher on Tuesday, with investors focusing on a likely change in the US Federal Reserve’s trend at its policy meeting, which is ends Wednesday.

Major central banks are due to meet this week, including the Fed and the European Central Bank, to assess the risks posed by the Omicron variant of the coronavirus and to decide how and when to reduce the pandemic emergency measures put in place nearly. two years. Read more

On Tuesday, US producer prices rose more than expected in November, confirming the view that US inflation could remain uncomfortably high for some time. Read more

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This pushed US yields higher and eurozone markets followed suit, with the yield on German 10-year government bonds, the bloc’s benchmark, rising 3 basis points on the day to -0 , 35%.

As of 4:11 p.m. GMT, it was up 1 basis point to -0.37%.

“Price action in the rate markets suggests that the most important central bank decision to take this week will be a hawkish turn by the Fed,” ING analysts said.

“At least that’s what we conclude by looking at the continued flattening of yield curves globally,” they added.

Germany’s yield curve, measured by the spread between two-year and 10-year yields, briefly flattened to 29.5bp, the narrowest since late August.

Most southern European bonds outperformed, with yields rising less than their higher-rated counterparts, a sign that the ECB is likely to remain supportive even as its bond purchases slow.

The 10-year Italian government bond yield rose 1 basis point to 0.93%, after hitting a one-week low of 0.887%.

The Italian-German 10-year yield spread narrowed to 127 bps.

The yield on 10-year Greek government bonds fell 4 basis points to 1.32%.

“We expect the ECB to remain supportive of BTPs and eurozone government bonds in general next year, particularly in the first quarter (of 2022),” Unicredit analysts said.

“The 100-day correlation between BTP and Bunds reached 85% recently, an indication that investors are currently viewing Italy’s idiosyncratic risk as contained despite next year’s presidential election,” they said. , adding that they expected the German-Italian yield to spread near around 125 basis points in the coming months.

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In addition, the European Union has announced its financing plan for the first half of next year, which will allow it to raise 50 billion euros in long-term bonds, in addition to the issuance of bonds.

DZ Bank said in a note to clients that it expects the ECB to announce an increase in the share of supranational bonds it is allowed to buy, from 10 to 15 percent, which should benefit bonds from the EU.

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Report by Stefano Rebaudo; Editing by Bernadette Baum and Alex Richardson

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