2023-09-19 10:25:24
Investors turned cautious following the euro zone’s benchmark 10-year Bund yield approached its highest levels in more than 12 years, with European Central Bank officials reiterating that rates would remain at their current levels. current levels for an extended period in order to control inflation.
ECB centrist policy chief François Villeroy de Galhau said the ECB would keep rates at 4% for as long as necessary, following some political hawks recently called for keeping rates at high levels for longer, without ruling out a new increase.
Money markets continue to assess the probability of a further ECB rate hike at around 30% by the end of the year.
“Investors are in no hurry to put their liquidity to work,” said Christoph Rieger, head of rates research at Commerzbank.
“While most people seem to agree that interest rates are at their highest, there is no urgency to lock in lower rates further down the curve,” he said. -he adds.
Bund yields fell one basis point (bps) to 2.70% on Tuesday. They reached their highest level since the summer of 2011 at 2.77% in early March.
“Overall, it appears that the recent selling move (in the Bund) may be running out of steam,” Citi analysts said following arguing that Bunds had reached technical support.
Markets are also awaiting the outcome of the Federal Reserve’s policy meeting on Wednesday, with a poll of academic economists expecting the US central bank to defy market forecasts and raise rates by 25 basis points (bp ).
Rising oil prices have raised fears that the disinflation process will slow, at least in the short term, adding downward pressure on bond prices, which move inversely to yields.
Oil prices rose for the fourth straight session on Tuesday as low U.S. shale production reignited concerns regarding a supply shortfall resulting from prolonged production cuts from Saudi Arabia and Russia.
Euro zone consumer inflation in August was slightly lower than initial estimates.
The yield on Italian 10-year bonds – the benchmark for the eurozone periphery – was down 3 basis points at 4.49%.
The spread between Italian and German 10-year bond yields – an indicator of investor confidence in the euro zone’s most indebted countries – was 177 basis points following hitting a new 3-1/2 month high at 180.90 basis points on Monday.
ECB policy hawks have reiterated that the central bank must end reinvestments of bonds purchased under the €1.7 trillion Pandemic Emergency Purchase Program (PEPP) (1 .82 trillion dollars) earlier than the current deadline of the end of 2024.
Such a move might hurt peripheral bond prices, as the ECB can use PEPP reinvestments flexibly to avoid excessive widening of yield spreads, which might hamper monetary policy transmission. (Reporting by Stefano Rebaudo, editing by Bernadette Baum, Alexandra Hudson)
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