LONDON, Oct 11 (Reuters) – Euro zone yields on Wednesday
dropped to fresh two-week lows as bonds held onto their gains
from Monday’s rush to safe haven assets, while the gap between
Italian and German yields was back below the 200 basis point
level.
Germany’s 10 year Bund yield, the benchmark for the currency
bloc was down 4 basis points (bps) at 2.74%, its lowest since
September 22.
German’s 10 year yield, which moves inversely to the bond’s
price fell, 12.6 bps on Monday, as investors rushed to the
safety of bonds due to the war in the Middle East.
Also behind the rally was a snap back in bonds, after heavy
selling in September, and remarks from central bank policy
makers on both sides of the Atlantic that gave investors
reassurance that the European Central Bank and U.S. Federal
Reserve had reached the end of their monetary tightening.
U.S. Treasuries were closed on Monday for a holiday, but the
10 year yield fall 12.7 bps on Tuesday, and a further 8 bps on
Wednesday, ahead of crucial U.S. data that will set the tone for
the government bond market as a whole.
“European bonds are largely following U.S. Treasuries with
FOMC minutes, PPI and CPI looming, though let’s see the ECB
inflation survey,” said Kenneth Broux head of corporate
research, FX and rates at Societe Generale.
“It’s too soon to tell if the Treasury move yesterday was
catch up or short covering after long run up in yields,” Broux
added.
The minutes of the September meeting of the Fed’s rate
setting Federal Open Market Committee are due later today, as
are U.S. factory gate price data, followed by consumer price
data on Thursday.
Also in the mix in Europe is a 30 year German Bund auction,
though, said Broux “German supply shouldn’t be a problem”.
The ECB Consumer Expectations Survey, closely watched for
what it says about price rises, is also due later in the day.
Italy’s 10 year yield was down 4.4 bps at
4.685%, a two week low, and the closely watched spread between
Italian and German 10 year yields was 193 bps down from nearly
210 earlier in the week on worries about Italy’s rising debt
levels.
Britain’s 10 year gilt yield dropped 6 bps to 4.37% also
around a two-week low.
(Reporting by Alun John; editing by Miral Fahmy)
