Bund Yields at Two-month Highs on Hawkish Fed

Germany’s 10-year Bund yield on Monday rose to its highest level since Britain’s vote to leave the European Union, as hawkish comments from the U.S. Federal Reserve were seen leaving the door open for a rate hike as early as next month.

Speaking at an annual gathering of central bankers in Jackson Hole, Wyoming on Friday, Fed Chair Janet Yellen said the case for a U.S. interest rate rise has strengthened in recent months because of improvements in the labour market and expectations of solid economic growth.

She did not indicate when the U.S. central bank might raise rates, and euro zone bond yields closed lower on Friday.

But a sell-off in U.S. Treasuries as investors interpreted the comments from Yellen and other Fed officials as hawkish dealt a blow to European bond markets as a new week began.

Fed Vice Chair Stanley Fischer said the Fed chief’s comments were a sign of how close policymakers could be to raising rates if data kept pointing to a good economic outlook.

The yield on Germany’s benchmark 10-year bond rose more than 6 basis points to minus 0.025 percent — the highest level since June 24 when the result of Britain’s EU referendum sent shockwaves through markets.

German Bund futures slid 80 ticks to 166.90 and across the euro zone, yields were 5-7 bps higher on the day.

U.S. Treasury yields held close to highs hit on Friday , while talk of a rate rise soon lifted the dollar against other major currencies.

Friday’s monthly U.S. jobs data was expected to be the next gauge for the timing of a Fed hike.

Overall trade in European markets was subdued with London closed for a public holiday.

Still, this week is expected to bring a pick-up in activity with bond issuance rising after a summer lull. Italy, Germany, France, Spain and Portugal are all scheduled to sell bonds with supply in the region estimated at more than 20 billion euros .

Reuters

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell