German bond yields edge up for first time in over a week

 09 Nov 2017 - 11:31

German bond yields edge up for first time in over a week
Image used for representation purposes only. Reuters.

Reuters

LONDON, Germany’s 10-year bond yield edged up on Thursday for the first time in over a week, pulling back from two-month lows as a broad-based tumble in euro zone government bond yields appeared to stall for now.

A European Central Bank decision two weeks ago to extend asset purchases well into September, albeit at a reduced monthly amount, has proved a powerful tailwind to bond markets, pushing bond yields from Germany to Portugal to multi-month lows.

A fall in U.S. bond yields and doubts about the inflation outlook in major economies has added momentum to world bond markets.

But bond yields across the euro area crept up on Thursday in a sign that investors are unwilling to push bond yields any lower without fresh drivers. Bond yields fall when prices rise.

“Bund yields at close to 0.30 percent shows we have come quite a long way given a brighter macro backdrop,” said Commerzbank analyst Michael Leicester. “We still don’t expect a big selloff yet.”

Germany’s benchmark 10-year Bund yield was 1 basis point higher on the day at 0.33 percent, up from a two-month low hit the previous session at around 0.31 percent.  It was set for its first daily rise since Nov. 1.

Peripheral bond markets, which have led the rally in recent weeks, were also on the back foot.

Italian bond yields on Wednesday rose for the first time in just over two weeks. In early Thursday trade, they were trading 1 bps higher on the day at 1.74 percent, up from one-year lows hit this week.

The rise in southern European bond yields has also pushed spreads over benchmark German peers back out after a sharp tightening in the past two weeks.

Spain’s 10-year bond-yield gap over Germany, for instance, was at around 115 bps. It was at 107 bps earlier this week, its tightest in around six weeks.

“Taking a step back, yesterday’s spread widening followed on the heels of an exceptional tightening run,” ING analysts said in a note.