Thursday, September 16

Euro zone bond yields steady near one-month high after sell-off

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LONDON — Euro zone government bonds extended the previous session’s sell-off slightly in early trading, before benchmark yields stabilized close to one-month highs, as investors quit their long positions ahead of new supply in September.

German and Italian 10-year yields had their biggest one-day rise in nearly six months on Wednesday, in a move which analysts said was due to a combination of factors, including investors dumping bonds before the US Federal Reserve’s Jackson Hole summit and two European Central Bank officials sounding upbeat about the euro zone economic outlook.

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On Thursday, this move continued to a lesser extent, with the German 10-year yield reaching a new one-month high of -0.402%, before edging back down.

Market attention this week has been largely focused on the annual Jackson Hole conference, and the possibility of Federal Reserve Chair Jerome Powell’s speech containing hints about his stance on tapering asset purchases.

But as the event drew nearer, investors have lowered their expectations that Powell will make market-moving comments.

“My best guess is that we’re seeing a bit of an unwind of our long term trades put on over the Summer ahead of Jackson Hole and ahead of any supply (in September),” said Antoine Bouvet, senior rates strategist at ING.

“The market’s not extremely liquid still… when the move starts to happen everyone’s just rushing for the exits.”

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At 1038 GMT, Germany’s benchmark 10-year yield was at -0.416%, having reached a high of -0.415% on Wednesday.

Accelerating inflation and rising COVID-19 cases made German consumers more hesitant to buy in September, the GfK consumer sentiment index survey showed.

Italy’s 10-year yield was down by half a basis point at 0.6668%, having hit 0.69% – its highest since July 22 – earlier in the session.

Bond investors will be focused on European Central Bank speakers, including board member Isabel Schnabel who is due to speak at a roundtable at 1500 GMT.

The minutes of the ECB’s July meeting will also be released later in the day.

“In view of the limited downside and more substantial upside potential to yields, we stick with our Bund short bias but see room for some near-term consolidation as the market looks oversold after yesterday’s sell-off near -0.4% in 10-year yields ,” Christoph Rieger, Commerzbank’s head of rates and credit research, said in a client note. (Reporting by Elizabeth Howcroft; Editing by Emelia Sithole-Matarise and Bernadette Baum)

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