LONDON: German Bund yields posted their biggest daily rise in two years on Wednesday on easing deflation fears and improved prospects for a Greek deal, and have now recovered more than half the fall suffered since the ECB's bond buying programme began.
German annual inflation accelerated faster than forecast in April, crucially remaining above zero for the second month running. Data also showed private lending in the euro zone rose for the first time in three years in March, a sign that the European Central Bank's trillion euro programme might be already having an impact.
Worries of prolonged deflation have driven yields on a third of euro zone bonds into negative territory this year.
"The big picture is that ... eventually inflation expectations stemming from QE may trump the (initial impact of bond buying)," Rabobank rate strategist Lyn Graham-Taylor said.
A five-year German debt auction drew fewer bids than the amount offered.
Ten-year German Bund yields, the benchmark for euro zone borrowing costs, rose 12 basis points to 0.28 percent.
This was the biggest daily rise since May 2013, with yields sitting in the top half of their trading range since the ECB launched its quantitative easing programme on March 9 to lift inflation.
Part of the rise in yields was attributed to government officials telling Reuters that Greece would present draft reform legislation to lenders on Wednesday in a bid to show it is serious about acting on pledges to secure aid.
"Assuming that the systemic risk of Greek default remains contained, the success of the ECB's QE strategy so far justifies our call for a less friendly macro-climate for bonds in the second quarter," said Lena Komileva of consultancy G+ Economics.
"BETTER NEWS"
The bill was the latest move to speed up negotiations with the European Union and the International Monetary Fund as Athens is rapidly running out of money, having raided various state entities for cash.
"Better news for Greece is not so good for ... Bunds," said Alan McQuaid, chief economist at Merrion Stockbrokers.
He said, however, that he would still put his money on Bund yields going to zero rather than 0.5 percent.
Greek yields rose, but analysts said the very illiquid Greek market exacerbated the move, which they said was probably triggered by some investors using the latest news to book profits on a rally in the past week.
Greek two-year yields rose 120 basis points to 21.80 percent, having fallen from above 30 percent late last week as a reshuffle of Greece's IMF/EU negotiating team has eased fears of immediate default and an exit from the euro zone.
Yields rose at an auction in Italy as well, but Rome saw strong demand and sold the top planned amount -- 8.25 billion euros in three bonds.
Portugal sold 2.5 billion euros of 10- and 30-year bonds.
Italian 10-year yields were up 12 basis points at 1.48 percent, while Portuguese 10-year yields rose 16 bps to 2.14 percent.
Comments
Comments are closed for this article.