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Markets

German Bund yield rises to one-week high as world sentiment rebounds

Germany, Italy, the Netherlands and Austria will sell bonds worth at least 12.7 billion euros later this session.
26 May 2020
  • Germany, Italy, the Netherlands and Austria will sell bonds worth at least 12.7 billion euros later this session.
  • Ten-year yields in Germany, the euro zone's benchmark bond issuer, rose almost 4 basis points to a one-week high of -0.447%.

LONDON: Germany's benchmark 10-year Bund yield rose to a one-week high on Tuesday as a rebound in world stock markets and a wave of new bond supply put upward pressure on euro zone bond yields.

Germany, Italy, the Netherlands and Austria will sell bonds worth at least 12.7 billion euros later this session.

The prospect of new supply, which often puts upward pressure on yields, alongside a firm tone in world stock markets hurt most higher-rated euro zone bond markets in early trade.

Ten-year yields in Germany, the euro zone's benchmark bond issuer, rose almost 4 basis points to a one-week high of -0.447%. Most long-dated bond yields in the bloc were more than 3 bps higher on the day .

In contrast, Italian 10-year bond yields held close to more than six-week lows hit on Monday at around 1.57%, with focus remaining on a European Commission recovery plan to be released on Wednesday.

A 500 billion euro Franco-German plan last week, with the inclusion of grants to help those economies hit hardest by the coronavirus pandemic, has boosted hopes that wealthier states will help alleviate pressure on more-indebted nations such as Italy.

ECB policymaker Francois Villeroy de Galhau said late on Monday that the flexibility of the ECB's 750 billion euro Pandemic Emergency Purchase Scheme - the flagship bond buying scheme during the crisis - made it the instrument of choice to deal with the crisis.

Analysts said his comments boosted expectations that the ECB was likely to deliver more stimulus when it meets next week.

"With the Franco-German fund a net-positive for risk-sentiment, and the likely expansion of the scope and scale of the ECB's QE (quantitative easing), risk sentiment should continue to be much more buoyant," Mizuho analysts said in a note.