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    Keyband yield on the verge of returning beyond zero

    Germany’s benchmark borrowing costs have surpassed zero for the first time in almost three years due to the upheaval in the eurozone bond markets, indicating investors’ belief that major central banks are likely to withdraw the stimulus of the pandemic era. I am.

    The country’s 10-year bond yield rose to minus 0.03 percent last week. This is the highest level since May 2019. Global drop The price of government debt has spread to the most important reference point in the European market. In the middle of last month, the gauge had dropped to minus 0.4%.

    The rapid rise in US-led yields Increase confidence among investors Omicron variants cannot upset the global economic recovery and could allow central banks to dial back purchases and raise interest rates.

    Micridel, Portfolio Manager at Allianz Global Investors, said: “It makes sense that a decrease in purchases leads to an increase.”

    Taking the lead from Bunds, Italy’s 10-year bond yields also rose to a high of 1.32% in the last 18 months. Eurozone inflation Last month, we set a new 5% record.

    Germany’s 10-year yield first fell below zero in 2016 after the ECB lowered interest rates to less than 0% to tackle the last major challenge, the Greek debt crisis. The once unthinkable shift in yields to the negative territory meant that investors were willing to pay Berlin effectively for the privilege of lending national money, even for a decade. ..

    Yields later picked up somewhat, but new ECB stimuli in the face of a slowdown packed them. Back to bottom Zero in 2019. The outbreak of Covid meant they stayed there.

    ECB at the December meeting announcement We will continue to buy assets after the emergency bond purchase program ends in March, but at a slower pace than investors expected. It pushed this reference rate back towards the threshold, coupled with signs that the United States is moving towards tighter policies.

    Some economists anxiety Germany could be dragged into recession due to the restrictions imposed to contain the spread of Omicron — negative growth for the second straight quarter.

    However, most believe that this will delay but not end Europe’s largest economic recovery, and hope that Germany will continue to grow strongly this year, supported by high levels of public spending. increase. Under the new government Before next year, stricter fiscal rules come back.

    Goldman Sachs chief European economist Sven Jari Stehn said the bright outlook means that Germany’s 10-year bond yield is expected to reach 0.3% by the end of this year.

    “The joint rise in European bond yields and stock prices since the global monetary policy shift in mid-December suggests that rising foreign bond yields are primarily due to improved growth sentiment,” he said. rice field.

    Germany has suspended restrictions on its budget deficit in response to a pandemic, but the ECB has gained a greater share of the market in recent years due to historical aversion to loose fiscal policy. The supply of the Bund is insufficient.

    However, with the support of Berlin, the creation of the EU’s 800 billion euro recovery fund would bring Brussels’ own debt. Benchmark assets To the rival The Bund. Meanwhile, the next prime minister, Olaf Scholz, has shown greater openness to borrowing than his predecessor, Angela Merkel, while within the constraints of constitutional restrictions on the budget deficit.

    Some investors believe that these shifts could help alleviate Germany’s debt shortages compared to the debt of governments with more free spending, such as Italy.

    “you [EU] “A recovery package, and a change of power in Germany,” said Ludovic Colin, fixed income portfolio manager at Vontobel Asset Management. “They didn’t become Italy overnight, but they probably became a little more Italian.

    “If fiscal policy helps to grow and create potential inflation, the long-term need for the ECB to maintain interest rates [minus 0.5 per cent] It could disappear, “he added.

    Still, some analysts are skeptical of the sudden sea changes in German yields. Camille de Courcel, chief strategy officer for BNP Paribas’ G10 rate Europe, said ECB purchases were € 88 billion less than last year, but still exceed Germany’s expected net bond issuance of € 54 billion this year. Stated. “We expect it to sell out until the end of the year, albeit in a limited way,” she said.

    According to Rabobank strategist Richard McGuire, the market is currently pricing on rising interest rates from the ECB.

    “It will be difficult for German yields to escape the gravitational pull of the negative territory,” he said. “Clients say it’s time to buy when it reaches zero. It’s a big change to have a positive risk-free rate in the euro area, but it’s hard to believe that this is a regime shift.”

    Keyband yield on the verge of returning beyond zero

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    The post Keyband yield on the verge of returning beyond zero appeared first on Eminetra.

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