German 10-year yields fall to 9-day low after U.S. removes key Fed programmes

LONDON: Benchmark German 10-year Bund yields fell to a nine-day low on Friday, taking a cue from their U.S. counterparts after U.S. Treasury Secretary Steven Mnuchin on Thursday told the Federal Reserve to return money earmarked for pandemic lending.

The U.S. government will end some crisis programs on Dec. 31 that the Federal Reserve views as vital to keeping the economy stable.

Government 10-year bond yields in Germany were last flat at -0.56pc, after dipping to -0.58pc earlier, their lowest since Nov. 9. U.S. Treasury 10-year yields fell to the same milestone overnight at 0.81pc.

High worldwide coronavirus infections are also outweighing the optimism surrounding hopes of a COVID-19 vaccine. All of this, mixed with hurdles which the European Recovery Fund has encountered recently, leave the door open for lower yields as investors seek safe-haven assets.

"Markets don't appear ready to see through the current virus wave just yet," said ING analysts in a note to clients.

"The EU recovery fund setback and the termination of some Fed programmes add longer term worries," they said.

This week, Hungary and Poland blocked the adoption of the EU's 2021-2027 budget and recovery fund over a clause that ties funds to respect of the rule of law.

The Recovery Fund had injected optimism in euro zone government bond markets earlier this year, an effect clearly seen in the spread between German and Italian yields.

On Friday, that spread - essentially the premium riskier Italy has to pay to borrow money - was at 117 basis points, not far from a two-and-a-half year low.

Traders will be looking for the flash consumer euro zone consumer confidence in London afternoon trading. Economists polled by Reuters expect a fall to -17.7 in November, compared with a reading of -15.5 in the previous month.