LONDON: German bond yields edged up on Tuesday as equity markets steadied and risk appetite recovered, but strategists said further rises were likely to be capped by cheapening oil prices and a US policy meeting.
The euro zone's benchmark moved away from three-week lows hit on Monday when a slump in Chinese stocks saw investors rush for cover in top-rated assets, as global stock markets staged a modest recovery.
Investors were encouraged by Chinese equity prices' closing off day's lows, even though they ended with a loss on the day.
Receding fears around Greece have seen safe-haven bonds lose their appeal.
Investor expectations of a euro zone break up fell to 26.5 percent in July, its lowest level in six months, Germany's Sentix research group said on Tuesday.
But with oil prices hovering near six-month lows on supply worries -- feeding deflationary fears -- and the US Federal Reserve expected to remain guarded on any plans to raise rates after a two-day meeting concludes on Wednesday, strategists were cautious about predicting any sustained market direction.
"Asian equities have done a bit better than yesterday so there is not an outspoken risk-off sentiment at this stage," said KBC strategist Piet Lammens.
"But the oil price might provide some support for the Bund while we don't see any reason for the Fed to come up with a more precise data for lift-off with a question mark still very much hanging over China."
A series of bearish projections on US economic growth and inflation which were inadvertently disclosed on the Federal Reserve's website on Friday has added to speculation that US policymakers may hold off signalling a rate hike for September.
German 10-year yields rose 1.5 basis points on Tuesday to 0.65 percent, having hit a three-week low of 0.62 percent on Monday. Lower-rated yields in the bloc's southern periphery fared better, with yields on Italian equivalents down 2 bps at 1.88 percent and Spanish equivalents lower by about a similar amount at 1.92 percent.
Peripheral euro zone bond yields are also subdued as the slump in global commodities prices pushed back expectations when the European Central Bank will start normalising its ultra-loose monetary policy.
A below-estimate rise in single family US home sales in May and a drop in a measure of US consumer confidence for July had littile impact on the overall direction of the market.
DZ Bank said markets were currently pricing in a 35 percent chance of the Fed raising rates in September, but expects this to "decline noticeably" after Wednesday's statement with the Fed unlikely to make any specific reference to a near-term hike.
Comments
Comments are closed.