LONDON: Euro zone bond yields rose on Friday after comments from US policymakers overnight prompted concerns that monetary policy in the world's largest economy could tighten faster than previously expected, though poor Chinese export data kept a cap on yields.
Federal Reserve officials said on Thursday that fiscal and tax plans sketched out by the incoming Trump administration could trade a short-term economic boost for inflation and debt problems they might have to counteract.
This pushed 10-year US Treasury yields up to 2.38 percent late on Thursday, a rise of 8 basis points (bps) from the trough hit earlier in the day.
Euro zone bond yields, which typically move in sympathy with US Treasury yields as many investors invest in both, rose 2-4 bps across the board in early trades on Friday, though they receded a touch as the session wore on.
Germany's 10-year bond yield, the benchmark for the region, was up over 3 bps in early trades but edged back to 0.24 by 1200 GMT, still higher on the day.
"The picture is a little bit mixed but the overall tone of the Fed speakers was more hawkish, that's probably why we are seeing yields move to the upside today," said DZ Bank strategist Daniel Lenz.
"But the Chinese export data is poor, and that should put a cap on the move," he said.
China's massive export engine sputtered for the second year in a row in 2016, with shipments falling in the face of persistently weak global demand and officials voicing fears of a trade war with the United States that is clouding the outlook for 2017.
Government bond yields in the major economies globally have been rising since the election of Republican Donald Trump as the next US president on expectations that increased spending will boost inflation and growth in the US That move reversed a little earlier this week as Trump's long-awaited news conference on Wednesday offered little clarity on his fiscal plans. However, as investors have also been keeping a close eye on what effect the incoming president's plans will have on monetary policy, the comments of the policy makers are pushing yields up again.
They will also watch Italian bonds ahead of a crucial review of the country's credit rating by DBRS. The Canadian agency is one of the four used by the European Central Bank and a downgrade would see the ECB increase the 'haircut' it applies to Italian bonds, piling extra stress on the country's banks that rely on its interest-free funding.
The yield on Italy's 10-year government bond was at 1.89 percent by 1200 GMT, unchanged on the day.
In related news, Credit Agricole's investment banking arm said on Friday it had decided to cease acting as a primary dealer in government bonds for Austria and Ireland, and in treasury bills for the Netherlands.
The bank is the latest to have given up primary dealer roles in Europe, a trend that threatens to increase liquidity constraints and could eventually make it more expensive for some countries to borrow.
Comments
Comments are closed.