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Markets

Euro zone bond yields narrowly mixed, ahead of Fed, EU bond

  • Comments from ECB officials supporting the view that there is no hurry to taper the central bank's aggressive emergency stimulus continue to support mostly peripheral bonds.
15 Jun 2021

MILAN: Euro zone government bond yields were mixed and traded in narrow ranges on Tuesday, with investors awaiting a US Federal Reserve policy meeting and the first bond issuance backing the EU recovery fund.

US 10-year borrowing costs rose by 4 basis points on Monday on some investors' concerns that the Fed could sound more hawkish than expected at its two-day meeting, which starts on Tuesday. Still, they were falling in early London trade, with the 10-year yield down 1.5 bps.

The European Union received over 76 billion euros ($92.18 billion) of initial demand for its bond. Initial price thoughts on the deal are around 1 bps above the mid-swap level, which is equivalent to about 0.10% according to Reuters calculations.

"It thus appears that the US-led short-squeeze has run its course. The evidence from futures positioning suggests that the squeeze has probably had its origin in real money as speculative net shorts were already at multi-year lows last Tuesday," Commerzbank analysts told clients.

"Overall, we suggest using any further resilience in Bunds to scale into tactical shorts ahead of the FOMC," they added.

Germany's 10-year government bond yield was flat at -0.25%.

Investors will focus on the latest US economic data before the Fed policy meeting, with May retail sales, producer prices, and industrial production on schedule.

"Retail sales could post a negative number, playing into the Fed's narrative that more time is needed before even thinking about removing accommodation. Industrial production should remain firm, though, and the PPI could signal further pipeline pressure for prices," ING analysts said.

A number of ECB policymakers are due to speak In Vienna, Madrid and Frankfurt on Tuesday, including the head of the Austrian National Bank, Robert Holzmann.

"EGBs could remain supported from the dovish ECB line-up, with only Holzmann holding some hawkish risk in the afternoon," according to Commerzbank analysts.

Comments from ECB officials supporting the view that there is no hurry to taper the central bank's aggressive emergency stimulus continue to support mostly peripheral bonds.

Italy's 10-year government bond yields fell 0.5 bps to 0.768%, near multi-week lows.

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