EUROZONE government bond yields edged up on Friday (Jun 7) and were on track to end the week with their biggest weekly fall since mid-March after the European Central Bank’s rate cut and weak US economic data.
The ECB’s remarks led investors to slightly reduce their bets on future monetary easing, which had increased in the days before its policy decision on the back of US data.
Germany’s 10-year yield, the benchmark for the euro area, was up one basis point (bp) at 2.55 per cent, and on track for a weekly fall of 9.5 bps. It hit a 6-1/2 month high at 2.707 per cent last Friday.
Money markets priced in around 60 bps of ECB monetary easing in 2024, implying two rate cuts including the one decided on Thursday and about a 40 per cent chance of a third move by year-end.
Germany’s two-year government bond yield, more sensitive to policy rate expectations, was up 1.5 bps at 3.03 per cent. It hit 3.125% on Friday, its highest since mid-November.
Italy’s 10-year yield rose one bp to 3.87 per cent.
GET BT IN YOUR INBOX DAILY
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The yield gap between Italian and German bonds, a gauge of the risk premium investors seek to hold bonds of the euro area’s most indebted countries, was at 131 bps. It hit a 15-month low of 115.4 bps in mid-March.
The spread between US and German 10-year yields – a gauge of expectations for monetary policy divergence between the Federal Reserve and the ECB – was at 177.9 bps from about 195 bps late last week. REUTERS
