EuropeStay updated with Business News, Pakistan news, Current world news and latest world news with Business Recorder..http://www.brecorder.com/markets/fixed-income/europe.htmlFri, 31 Oct 2014 04:52:22 +0000SRA Framework 2.0en-gbEuro zone deflation worries shield German Bunds from upbeat Fedhttp://www.brecorder.com/markets/fixed-income/europe/202468-euro-zone-deflation-worries-shield-german-bunds-from-upbeat-fed.htmlhttp://www.brecorder.com/markets/fixed-income/europe/202468-euro-zone-deflation-worries-shield-german-bunds-from-upbeat-fed.htmlimageLONDON: German Bunds held steady on Thursday as deflation worries in the euro zone, underscored by figures from Spain, offset the impact of the U.S. Federal Reserve ending its bond-buying programme with a positive note on the economic outlook.

Spanish consumer prices fell 0.2 percent in October compared with a decline of 0.3 percent in the previous month. While in line with expectations, the fact that the figure held below zero reinforces bets that the European Central Bank may have to ease monetary policy even further.

On the other side of the Atlantic, the U.S. central bank dropped a reference to labour market slack as "significant", in a show of confidence on the economy.

It also largely dismissed recent market volatility, dimming European growth and low inflation as unlikely to undercut progress towards its unemployment and inflation goals.

As a result, yields on U.S. Treasuries rose roughly 4 basis points on Wednesday, while short-term interest rate futures suggested markets had brought forward their Fed rate hike expectations to September from October next year.

German 10-year Bund yields, which often take their cue from moves in U.S. Treasuries because both share a safe-haven benchmark status, did not replicate the move. They were last a fifth of a basis point higher at 0.895 percent.

"The Bund market is focused on the ECB and the outlook for the euro zone recovery," said Alessandro Giansanti, senior rate strategist at ING.

The ECB has just launched a programme of buying covered bonds and asset backed securities, and several sources have said it is considering buying corporate bonds to inject more money into the sluggish economy. Many in financial markets expect the ECB to eventually start buying government bonds.

German inflation data is due at 1300 GMT, and expected to show a 0.9 percent rise, which should contribute to an overall figure for the euro zone of 0.4 percent, well below the ECB's target of just below 2 percent.

Figures for the region are due on Friday at 1000 GMT.

ITALIAN PREMIUM

Italy said it would issue up to 7.25 billion euros of floating rate notes linked to euro zone inflation, as well as five- and 10-year conventional bonds.

News that nine Italian banks failed the ECB's stress tests pushed the premium Italian 10-year bonds offer over their Spanish counterparts to its highest since February 2012 at 40 bps earlier this week.

Italian 10-year yields were up 2 basis points at 2.52 percent on Thursday, while Spanish yields were flat at 2.14 percent, leaving the gap between the two at 38 bps.

All Spanish banks passed the health check. Rome has also been criticised for the slow pace of the economic reforms needed to boost growth and ease a 2 trillion euro debt burden.

While Italy's economy is in recession, Spain's expanded by 0.5 percent in the third quarter, data showed on Thursday.

The level of demand at the auction will be scrutinised for any signs on whether investors consider that the yield premium over Spain attractive enough. Commerzbank strategists prefer Italian bonds over Spanish ones at these levels.

"Today's offering may give a clue to how much further this widening trend can run, though we suspect the move has gone beyond the fundamental differences of the two sovereigns," said Orlando Green, rate strategist at Credit Agricole.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin)EuropeThu, 30 Oct 2014 09:31:14 +0000
ECB may struggle to buy enough corporate bondshttp://www.brecorder.com/markets/fixed-income/europe/201831-ecb-may-struggle-to-buy-enough-corporate-bonds.htmlhttp://www.brecorder.com/markets/fixed-income/europe/201831-ecb-may-struggle-to-buy-enough-corporate-bonds.htmlimageLONDON: Any extension of the European Central Bank's asset-purchase scheme to include company debt risks running into a familiar problem - the ECB may not be able to buy enough of them to make a difference.

A wave of enthusiasm spread over financial markets on Tuesday after Reuters reported, citing sources close to the situation, that the ECB might decide as soon as December to start buying corporate bonds to complement its covered bonds and asset-backed securities purchase programme.

But those who own the bonds may not want to sell them, and bond market participants and analysts say a shortage of bonds to buy would make the scheme more symbolic than substantive. It could also highlight the ECB's difficulties in pressing ahead with more contentious plans to buy sovereign debt.

Some even think the corporate bond-buying scheme, intended to revive growth and stave off deflation, could do more harm than good.

"Our advice - don't do it," said Suki Mann, head of European credit strategy at UBS.

The ECB says its Governing Council has not decided to buy corporate bonds. It has previously stated, though, that its aim is to bring its balance back to levels last seen in 2012, to unclog credit channels and stimulate lending to the real economy. Its balance sheet reached around 3 trillion euros in early 2012 and stands at around 2 trillion now.

Yet it appears to be struggling to find ways to spend this newly printed money.

Rabobank analysts predict that the ECB will only be able to buy around 100 billion euros of covered bonds and ABS, a tenth of the stock the ECB says is eligible for purchase. Economists polled by Reuters predict 250 billion euros of purchases. .

Corporate assets eligible as collateral for the ECB's existing bank lending operation stood at 1.4 trillion at last count. But analysts think the total amount it could buy in a direct purchase scheme would be much smaller.

Bank estimates for the pool of corporate bonds likely to be eligible - stripping out those with very short maturities, foreign currencies or issuers and junk ratings - range from 700 billion to 1.1 trillion euros.

It would need to buy nearly all of that to hit its balance sheet target. Investors say in reality it will be able to buy few.

"The bonds are held currently by the vast number of fund managers and insurance companies that need to hold corporate bonds, and the ECB is going to struggle to suck a lot of those bonds out unless they pay considerably over the market price," said Adam Cordery, head of euro fixed income at Santander Asset Management.

"BROKEN" MARKET

Even with record low borrowing costs and ample demand, many companies have little appetite for debt-funded expansion with the threat of a triple-dip recession on the horizon.

Bond redemptions have outpaced issuance in the investment-grade corporate bond markets this year, as they have in broader credit markets. That has left a wealth of investors competing for limited supply.

This has exacerbated a problem in secondary markets, where a lack of trading prompted the world's biggest asset manager, BlackRock, to label the corporate bond market "broken" in a note to clients last month.

One of the few historical examples that strategists point to for the ECB's potential expansion into corporate bonds is the UK. In 2009, the Bank of England started buying corporate bonds, but its total purchases peaked at 1.5 billion pounds - or just 0.6 percent of the market.

Even if the ECB does find bonds to buy, strategists are worried that all it may serve to do is further inflate a credit bubble as investors are forced into riskier debt to meet yield targets.

As the Reuters report broke on Tuesday, the main euro zone corporate credit index dropped to its tightest level in nearly two weeks, peripheral euro zone government bond yields tumbled and European stocks were put firmly on course for their best week in a year.

"The credit market is already intoxicated on the drug called negative net supply, and the addictive quest to compensate low rates," said Jeroen van den Broek, a credit strategist at ING.

"The ECB entering the fold would see investment mandates stretched even further to find elusive yield and homework on credit being ignored further."

Analysts are also trying to work out whether this is a prelude to the kind of sovereign bond-buying that could meaningfully increase the ECB's balance sheet, or evidence that such a programme is far from certain.

German Chancellor Angela Merkel is struggling to contain a public backlash to ECB president Mario Draghi's ever-expanding toolbox of unconventional policies.

Sovereign bond purchases - which German plaintiffs to Europe's top court say violates a ban on ECB funding of governments and exceeds its mandate - may prove a step too far.

"The ECB's foray into buying corporate bonds could be a sign that the there remains considerable opposition to government bond QE within the Governing Council," said Abhishek Singhania, European interest rate strategist at Deutsche Bank.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin)EuropeMon, 27 Oct 2014 12:02:42 +0000
Spanish, Italian yields fall as banks health check brings reliefhttp://www.brecorder.com/markets/fixed-income/europe/201828-spanish-italian-yields-fall-as-banks-health-check-brings-relief.htmlhttp://www.brecorder.com/markets/fixed-income/europe/201828-spanish-italian-yields-fall-as-banks-health-check-brings-relief.htmlimageLONDON: Spanish and Italian government bond yields fell on Monday after the euro zone bank stress tests showed no major bank was in trouble, while those that failed having only a relatively small capital hole to fill.

Yields remained around the day's lows after Germany's Ifo business survey came in weaker than expected, reflecting a calmer market after a raft of poor data caused one of the sharpest sell-offs in peripheral bonds two weeks ago.

Only 25 banks of the 130 tested failed the European Central Bank's assessment at the end of last year, with a total 25 billion euro capital shortfall. Investors saw this as manageable and reassuring.

Of the banks that failed, a dozen had already raised 15 billion euros to make repairs. The main problems were in Italy, Cyprus and Greece, with Italy facing the biggest challenge as nine of its banks fell short. Two still have gaps to plug.

The situation in Italy did not surprise the market, however, and did not stop yields on its debt falling on Monday, though they fell less than their Spanish counterparts.

Spanish 10-year yields fell 5 basis points to 2.13 percent, while Italian yields fell 2 basis points to 2.50 percent.

"There's some relief this morning that there were no Spanish banks in the test that failed. As for Italy - that was already priced in," said Emile Cardon, market economist at Rabobank.

Traders said part of Italy's underperformance versus Spain could be explained by plans to sell 3.5 billion euros of zero-coupon and inflation-linked bonds on Tuesday, as well as medium- and long-term debt on Thursday.

ECONOMIC WEAKNESS

Ten-year German Bund yields, which set the standard for euro zone borrowing costs, fell 1 basis point to 0.88 percent.

They reversed an earlier rise after a survey by the Munich-based Ifo think-tank showed German business sentiment deteriorating for a sixth month running to its lowest in almost two years.

The figures reinforced expectations of further ECB monetary policy easing, potentially via a programme of sovereign bond purchases, known as quantitative easing (QE).

The sell-off from two weeks ago on the back of weak data was put off by talk last week that the ECB was planning to top up its programme of buying asset backed securities and covered bonds with a corporate debt buying scheme from next year.

Although some remain sceptical this would be enough to lift inflation from near-zero levels, the possibility of further measures to ease policy is a reminder of the ECB's commitment to "do whatever it takes" to save the euro.

"Poor data in a sense that it increases the likelihood of ECB taking the next step towards a large-scale traditional quantitative easing would be, other things equal, beneficial, for peripheral spreads," said Jussi Hiljanen, chief fixed income strategist at SEB.

"Of course if you took a longer perspective, low inflation - or deflation in some euro zone countries - would make the task of stabilising debt even more difficult. There are and will be fundamental problems when it comes to the debt burden."

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin)EuropeMon, 27 Oct 2014 11:56:58 +0000
Upbeat business surveys encourage investors out of Bund refugehttp://www.brecorder.com/markets/fixed-income/europe/201285-upbeat-business-surveys-encourage-investors-out-of-bund-refuge.htmlhttp://www.brecorder.com/markets/fixed-income/europe/201285-upbeat-business-surveys-encourage-investors-out-of-bund-refuge.htmlimageLONDON: German government bond yields edged higher on Thursday after an unexpected uptick in euro zone business surveys staved off fears the bloc could be headed for a triple-dip recession.

Markit, which publishes the survey, said the positive reading for the euro zone manufacturing sector points to an expansion in gross domestic product in the current quarter.

"There's been a string of bad news so this is one thing at least to give a little bit of a fillip to the market and show that it's not all bad news, not all one way," said Orlando Green, European fixed income strategist at Credit Agricole CIB.

German 10-year yields rose 1 basis point to 0.87 percent at 1030 GMT, having been as low as 0.84 percent in early trading.

The purchasing manager data showed a strong rebound in German manufacturing, but French business activity slid in October to an eight-month low.

This economic divergence is at the heart of a rift in Brussels where France and Italy are pushing for more fiscal leeway while Germany is keen to keep members' finances in check.

The European Commission is discussing changes with Italy and France to their 2015 draft budgets to avoid having to send back the plans, which break European Union rules, EU officials said on Wednesday.

Investors were also comforted by the fact that China's vast factory sector grew a shade faster in October, though analysts said the figure did not point to a fourth-quarter turnaround for the world's second-largest economy.

US manufacturing PMIs are due at 1345 GMT.

Data showing a mild rebound in US consumer prices on Wednesday reduced bets the Federal Reserve will push back eventual interest rate hikes.

European bond markets have been buoyed by a report that the European Central Bank is considering buying corporate bonds as its next stimulus measure -- a move many see as a prelude to sovereign bond purchases.

Analysts at Unicredit said the latest euro zone data could give the ECB pause as it decides what next steps to take to support the economy.

"Thanks to these better-than-expected preliminary PMI readings, we believe that the ECB will continue with its wait-and-see mode to assess the impact on the real economy of its recent measures," the analysts said in a note.

Traders say volumes remain low as investors wait on the sidelines for the results of the ECB's bank stress tests, due on Sunday.

Shares in Italian banks Monte dei Paschi and Banca Carige were hit on Thursday after Bloomberg reported that both banks were likely to need additional capital.

Pimco's global banking specialist, Philippe Bodereau, told Reuters that he expects 18 banks will be seen to have failed the stress tests.

Italian and Spanish yields were steady at 2.52 and 2.21 percent respectively.

Greek bond yields, which have whipsawed on concerns about political stability and the government's plan for an early exit from Greece's bailout, rose 7 bps to 7.48 percent.

Copyright Reuters, 2014

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s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui)EuropeThu, 23 Oct 2014 11:45:42 +0000
Investors return to periphery debt as ECB mulls corporate bond buyshttp://www.brecorder.com/markets/fixed-income/europe/200914-investors-return-to-periphery-debt-as-ecb-mulls-corporate-bond-buys.htmlhttp://www.brecorder.com/markets/fixed-income/europe/200914-investors-return-to-periphery-debt-as-ecb-mulls-corporate-bond-buys.htmlimageLONDON: Low-rated euro zone bond yields fell on Tuesday after several sources told Reuters the ECB was considering buying corporate bonds, quelling some concerns that the central bank was not doing enough to stoke inflation and growth.

The report also prompted investors to pull out of safe haven German bonds, where they had sought refuge after a series of weak growth data - the latest of which came from China on Monday - dragged on the global economic outlook.

"Investors now appear to take a little bit more risk on the basis that there is a relief that the ECB is considering doing something else," said Lyn Graham-Taylor, a rates strategist at Rabobank.

To complement the ECB's covered bond and asset-purchase programme that started this week, the ECB is mulling whether to begin buying corporate bonds. It may decide on the matter as soon as December, sources told Reuters.

German 10-year yields rose 4 basis points after the Reuters report, reversing earlier falls and hitting a high for the day of 0.89 percent.

In contrast, Portuguese yields, which had risen by as much as 10 bps in early trading, were 4 bps lower on the day at 3.48 pct. Italian equivalents were 7 bps lower at 2.51 pct, while Spain's were 3bps lower at 2.23 pct.

Greek yields - pressured by the government's bid to exit its bailout and the threat of early elections - were 25 bps lower at 7.81 pct, having earlier climbed as high as 8.17 pct.

Irish yields were the exception - still some 3 bps up on the day at 1.90 percent. Dealers said expectations of a forthcoming 15-year bond sale were weighing on the market.

Some strategists said that while the new programme was supportive for low-rated bonds, it could push back expectations of a sovereign bond-buying quantitative easing (QE) programme.

"The story may suggest government bond buying is not that close on the agenda from the ECB compared to elevated market expectations," said Rainer Guntermann, a strategist at Commerzbank.

DZ Bank strategist Christian Lenk added: "It certainly gives risky assets a little bit of help and puts Bunds under pressure as the ECB might not focus on government bonds but on corporate bonds instead to fulfil the balance sheet expansion that it has announced."

But with Germany's central bank warning on Monday that the country risks coming dangerously close to recession, any further ECB intervention will bring relief.

The bloc's largest economies are at loggerheads on how to boost growth. Countries including Italy and France have called for more fiscal flexibility in the euro zone, while Germany is eager to keep public finances in check.

Italy's draft budget which it submitted last week, and which proposed slower cuts to its deficit, looks set to be rejected by the European Commission.

Germany and France promised on Monday to unveil joint proposals on strengthening investment and competitiveness by early December.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin)EuropeTue, 21 Oct 2014 11:42:20 +0000
Solid US data calms euro zone bond market but more volatility seenhttp://www.brecorder.com/markets/fixed-income/europe/200712-solid-us-data-calms-euro-zone-bond-market-but-more-volatility-seen.htmlhttp://www.brecorder.com/markets/fixed-income/europe/200712-solid-us-data-calms-euro-zone-bond-market-but-more-volatility-seen.htmlimageLONDON: Euro zone bond markets looked more stable on Monday after solid US economic data eased some of the concerns over a slowdown in global growth that led to sharp sell-offs in peripheral debt last week.

Yields on the euro zone's lowest-rated debt rose by 40 to over 200 basis points from lows to highs last week -- among the biggest moves seen since the peak of the debt crisis -- before retreating on Friday.

Signs that another recession may be brewing due to a broader slowdown in global growth have caused investors to refocus on high debt levels in countries like Italy, Spain or Portugal.

But Friday brought a surprisingly strong Thomson Reuters/University of Michigan index of U.S. consumer sentiment -- the highest reading in more than seven years -- while new housing starts also rose more than expected last month.

Markets remained nervous, however.

"The dust is settling at the moment after the terrible week we had," said Patrick Jacq, rate strategist at BNP Paribas.

"Things remain vulnerable.... but there is not such a massive flight to quality as we had last week. The market is not yet really confident, but we see little reason to extend the massive movement we saw last week."

German 10-year Bund yields, which set the standard for euro zone borrowing costs, fell 1 basis point to 0.85 percent. Spanish and Italian yields were 2 bps up at 2.19 percent and 2.52 percent, respectively.

Comments from central bankers provided some support.

Boston Fed President Eric Rosengren said recent volatility in financial markets reinforces the need for the Federal Reserve to be patient with its policy stimulus. He said he could "easily imagine" a scenario in which the U.S. central bank keeps interest rates near zero until 2016.

The European Central Bank has started buying covered bonds as part of its new stimulus package, an ECB spokesman said on Monday.

VOLATILITY AHEAD

But analysts expect bond markets to remain volatile.

"The outlook that investors have at this moment on the economy and central bank policy is not very clear," said Alessandro Giansanti, senior rate strategist at ING.

"The trend should still be positive for Bunds, due to the risk of falling back into recession."

RIA Capital Markets bond strategist Nick Stamenkovic said data due this week were unlikely to ease investor concerns about the economy. Third quarter growth data in China on Tuesday are "almost certainly going to show a slowdown in growth" while flash business surveys in the euro zone on Thursday are likely to show that "the economy still is very much in the doldrums".

"The underlying sentiment remains pretty fragile. The sharp rise in volatility last week is likely to make investors cautious," Stamenkovic said.

Even markets in Greece were calmer on Monday after having their worst week since 2012 due to the risk of early elections next year and nervousness caused by Prime Minister Antonis Samaras' plans to exit the bailout programme early.

He told Reuters in an interview on Friday he can lead his country out of the four-year aid deal and not call early elections. One possibility was a credit line which Athens could tap post-bailout if markets got nervous, he said. However, it is far from clear whether such an option is open.

Greek 10-year yields were 9 basis points lower at 7.96 percent, having climbed above 9 percent last week.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin)EuropeMon, 20 Oct 2014 12:51:41 +0000
UK gilts tumble for second day as equities rebound http://www.brecorder.com/markets/fixed-income/europe/200361-uk-gilts-tumble-for-second-day-as-equities-rebound.htmlhttp://www.brecorder.com/markets/fixed-income/europe/200361-uk-gilts-tumble-for-second-day-as-equities-rebound.htmlimageLONDON: British government bonds fell steeply for a second day on Friday, after share prices rebounded and investors judged that Wednesday's leap up in gilt prices was overdone.

Added into the mix were comments from the Bank of England's chief economist that -- although the outlook was gloomier than three months ago, with a risk of long-term stagnation -- a rate rise around the middle of next year was still possible.

A rebound in share prices and a fall in the yields on Greek and Spanish bonds also took the shine off safe-haven British government debt, which is now little changed from last Friday despite some of the biggest one-day moves in more than a year.

Ten-year gilt yields stood 7 basis points higher on the day at 2.16 percent at 1135 GMT, close to a one-week high and well off the trough of 1.937 percent touched early on Thursday, the lowest since May 2013.

Five- and 30-year gilt yields were up a similar amount .

"Peripheral (euro zone) spreads are tighter and equities are higher, so you are seeing a fall in (core) bonds, which gilts are underperforming," said RBC gilts strategist Vatsala Datta.

Ten-year gilts' yield premium over Bunds widened 4 basis points on the day to 131 basis points, and at one point reached their highest in a week at 134.9 basis points. On Wednesday the spread had fallen to a four-month low below 119 basis points.

The effect on the bond market of comments by BoE chief economist Andrew Haldane was harder to tease out.

Haldane said that he -- like financial markets -- had grown gloomier about the economic outlook over the past three months, and had pushed back his expectations of when rates would rise.

But he described expectations of a rate rise in the middle of next year as "not a bad bet". Market expectations for when the BoE will next raise rates have swung sharply this week, exacerbated by a lack of liquidity.

At one point on Wednesday markets appeared to have ruled out any increase in rates at all next year, though on Friday analysts said a move in August or September was now priced in.

Economists polled by Reuters still expect a move in early 2015.

Marc Ostwald, a strategist at ADM Investor Services International, said that markets may have taken Haldane's gloom as a signal that rates would stay on hold for a long time, and moved out of gilts and into riskier assets in a hunt for yield.

RBC's Datta said his comments could be viewed as a reminder that rates would ultimately rise, and that -- particularly for longer-dated bonds -- yields were too low.

Haldane also raised the possibility that Britain's weak productivity and wage growth -- not its recent strong economic expansion -- could prove more typical of the future.

Next week offers more opportunities for investors to take fright at risks to the global economy, particularly with US inflation data due on Wednesday.

Wednesday will also bring a further update of the BoE's views on rates, with the publication of October's Monetary Policy Committee minutes.

The discussion, however, predates the recent market turmoil and data showing a slowing in job creation and a fall in British inflation to a five-year low of 1.2 percent.

Copyright Reuters, 2014

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s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui)EuropeFri, 17 Oct 2014 16:27:46 +0000
Bund yields hit new lows as euro zone outlook weakenshttp://www.brecorder.com/markets/fixed-income/europe/199903-bund-yields-hit-new-lows-as-euro-zone-outlook-weakens.htmlhttp://www.brecorder.com/markets/fixed-income/europe/199903-bund-yields-hit-new-lows-as-euro-zone-outlook-weakens.htmlimageLONDON: German Bund yields fell to a record low on Wednesday as worries over a deteriorating euro zone economic outlook, fed by another credit rating blow for France, and "free falling" inflation expectations dominated the market.

Yields jumped in Greece, where investors are worrying about the risk of snap elections and Athens' plans to exit its bailout early.

Data releases continued to undershoot expectations, with the latest being a 0.6 percent fall in Finnish economic output in August that followed a revised decline of 1.2 percent in July.

A key business survey on Tuesday fuelled concerns that Germany may face recession.

The weak economic data pushed one of the most closely-watched measures of inflation expectations to new record lows, increasing the pressure on the European Central Bank to ease monetary policy further.

"Investors are looking at the risk of quite depressed economic growth or recession in the euro zone," said Alessandro Giansanti, senior rates strategist at ING.

"Inflation expectations are in free fall so I think there is no other option for the ECB then to rush in and buy government bonds as soon as possible."

There also seems little point in looking elsewhere in the region for a growth kick. Fitch placed France's AA+ rating on negative watch late on Tuesday, citing risks to the economic outlook and deficit-reduction plans.

That followed Standard & Poor's revision of France's AA outlook to negative from stable last week.

German 10-year Bund yields, which set the standard for borrowing costs in the euro zone, hit a record low of 0.824 percent, 2 basis points lower on the day.

"Given the already very low yield level, Bunds are likely to find it increasingly difficult to advance further," said Manfred Bucher, senior analyst at Bayerische Landesbank. "However, they remain well supported amid increasing scepticism on the economy and deflation concerns."

France's 10-year yields also fell to 1.18 percent, with the ratings move not hurting the appeal of its debt as markets are focused more on the impact a weakening outlook would have on central bank policy.

FREE FALL

The euro five-year, five-year breakeven forward , which shows where markets expect 2024 inflation forecasts to be in 2019 was around 1.76 percent, a record low. It has fallen 20 bps in the past month.

Annual inflation in the euro zone slowed to just 0.3 percent in September and oil prices around four-year lows are stoking fears the euro zone could fall into deflation, which could cripple economic growth even more.

"With deflation worries still very much to the fore in the euro area and the pressure on the ECB to take further action in coming months, Bunds will remain underpinned in the near term," said Nick Stamenkovic, bond strategist at RIA Capital Markets.

Greece was the only market in the euro zone which ignored prospects of ECB easing. Ten-year yields rose 55 basis points to 7.60 percent, their highest since March.

Investors fear that an early exit from the bailout programme would derail Athens' fragile fiscal progress and that snap elections are inevitable next year when a presidential vote is held. That brings the prospect of a political deadlock or a government led by the radical leftist Syriza party, which has campaigned against austerity.

"Investors are worried that Greece cannot survive alone," ING's Giansanti said.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin)EuropeWed, 15 Oct 2014 12:16:00 +0000
German bond yields hit record lows after ZEW fuels growth scarehttp://www.brecorder.com/markets/fixed-income/europe/199752-german-bond-yields-hit-record-lows-after-zew-fuels-growth-scare.htmlhttp://www.brecorder.com/markets/fixed-income/europe/199752-german-bond-yields-hit-record-lows-after-zew-fuels-growth-scare.htmlimageLONDON: German government bond yields hit a new record low on Tuesday as a monthly gauge of economic sentiment reinforced fears the euro zone's engine may be slipping towards recession.

The ZEW institute's index of German economic sentiment turned negative for the first time since late 2012, falling to -3.6 in October from 6.9 the previous month. Economists polled by Reuters had expected a reading of 1.

Speaking after the release, ZEW's chief economist said the German economy could shrink in the third quarter, taking it into recession after a contraction of 0.2 percent in April-June.

Europe's malaise is fuelling concerns around global growth, pushing investors towards safe-haven assets, but the impact on some of the euro zone's riskiest government debt has been limited by expectations of further European Central Bank easing.

"Economic concerns are so much in focus now that the risk-off sentiment is more dominant currently than the QE (quantitative easing) effect," DZ Bank strategist Daniel Lenz said, referring to expectations among investors that the ECB will launch a scheme to buy sovereign bonds with new money.

Ten-year German bond yields dipped 4 bps to a new record low of 0.847 percent after the ZEW reading, while Italian and Spanish equivalents each rose 1 bp to 2.34 and 2.09 percent. Lenz said that if QE was not anticipated, yields in Spain and Italy would be 6-7 bps higher.

But hopes for a sovereign bond-buying scheme could be dealt a blow by Europe's top court, which opens discussions on the legality of any such scheme on Tuesday.

After a referral by Germany's Constitutional Court, the European Court of Justice will hear challenges from German plaintiffs to the ECB's existing Outright Monetary Transactions scheme. They say that pledge to buy bonds, made in 2012 at the peak of the euro debt crisis but never used, exceeded the ECB's mandate and violated a ban on it funding governments.

Even though a final decision is not seen as imminent, the hearings will give some insight into the likelihood of the ECB being able to deliver on a full-blown QE programme.

GREEK RISKS

Greek 10-year bond yields rose above 7 percent for the first time since March on Tuesday, extending a rise prompted by political uncertainty and nervousness over plans by Athens to exit the country's bailout early. Yields were 32 bps higher on the day at 7.10 percent..

"We don't have buyers in the Greek bond market because of the political risk, the possibility of snap elections in early 2015," a bond trader at a major Greek Bank told Reuters.

Prime Minister Antonis Samaras won a parliamentary vote of confidence in his right-left coalition government last Friday but political analysts say a snap election is likely which could propel the radical leftist Syriza party to power.

A poll on Tuesday showed Syriza ahead of the government party.

Elsewhere, investors appeared to shrug off a decision by Spain's Catalonia region to cancel an independence referendum.

As widely expected in the market, Catalan leader Artur Mas called off the vote scheduled for November 9 and said there would be a consultation on breaking away from Spain instead.

"I was in Spain recently and clearly all our Spanish clients did not expect Catalonia to go ahead with the referendum," said Ciaran O'Hagan, a bond strategist at Societe Generale.

"That is why you have seen no market reaction."

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin)EuropeTue, 14 Oct 2014 13:59:17 +0000
British 10-year gilt yields touch 16-month low as rate rise expectations pushed backhttp://www.brecorder.com/markets/fixed-income/europe/199546-british-10-year-gilt-yields-touch-16-month-low-as-rate-rise-expectations-pushed-back.htmlhttp://www.brecorder.com/markets/fixed-income/europe/199546-british-10-year-gilt-yields-touch-16-month-low-as-rate-rise-expectations-pushed-back.htmlimageLONDON: British 10-year government bond yields fell to their lowest level in 16 months on Monday on growing expectations that the Bank of England will delay a first interest rate hike until deep into 2015.

Yields on 10-year debt were down more than 3 basis points at 2.18 percent at 0923 GMT, adding to last week's 19-basis-point drop, which was the largest weekly decline in more than a year. Earlier on Monday the yield was as low as 2.179 percent, its lowest since June 2013.

Gilts continued to outperform German government debt with the yield spread between the 10-year gilt and the equivalent German Bund tightening by 3 basis points to fall below 130 basis points, its narrowest since early June.

December gilt futures hit a contract high of 115.68, up 44 ticks on the day.

Britain's economy has performed much more strongly than Germany's and the euro zone as a whole.

But the Bank of England is not expected to start raising interest rates quickly because wage growth remains depressed, reducing the risk of a bounce in inflation, and as the weak euro zone economy poses risks to Britain's strong economic growth.

Simon Peck, a strategist at RBS, said investors had scrambled last week to buy gilts after previously betting on a UK interest rate rise in early 2015.

Data this week is expected to show continued weak pay growth and low inflation, which would add to the sense that the Bank of England is comfortable keeping rates on hold.

"It's tough to see any real catalyst for a reversal of what we have seen and policymakers have been pretty quiet in terms of their rhetoric and communication of late so we are just seeing this gradual grind continue," Peck said.

Data on Wednesday is expected to show that British average weekly earnings, including bonuses, rose a meagre 0.7 percent in the three months to August, from the same period last year. That would be half the rate of annual inflation, which analysts forecast at 1.4 percent in August. Inflation data is due out on Tuesday.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin)EuropeMon, 13 Oct 2014 13:27:50 +0000