Euro zone bond yields fall from highs as sell-off pauses

  • Biggest daily drop in German yields for four weeks
  • Yields pull back from multi-month highs
  • Analysts say bonds look attractive again after rout
  • Euro zone bond yields came off multi-month highs on Monday as investors dipped their toes back into the market after the brutal sell-off of the last two weeks.

    Investors dumped government bonds over the past two weeks on the belief that the European Central Bank (ECB) would unwind extraordinary stimulus sooner rather than later.

    This pushed yields up to levels where they were starting to look attractive again, resulting in Monday’s dip, analysts said.

    “It is a retracement after a very strong move over the last two weeks,” Rabobank strategist Richard McGuire said.

    “With Bunds where they are, you are always going to get some buyers willing to buy (bonds with) zero risk at over 50 basis points.”

    The yield on Germany’s 10-year government bond , the benchmark for the region, recorded its biggest one-day fall in almost four weeks, down 3 basis points at 0.54 percent.

    But they are more than double the 0.25 percent level at which it began on June 27, the day ECB President Mario Draghi opened the door to tweaks in the ECB’s aggressive stimulus policy in a speech in Sintra, Portugal.

    Other euro zone bond yields were down 2 to 6 bps on Monday.

    Strong U.S. employment data on Friday bolstered a feeling that central banks across the world have more reason then ever to continue to unwind the loose policy stance of the post-crisis era.

    U.S. 10-Year treasury yields might trade in a 2.50 to 2.75 percent range by the end of the year, Rick Rieder, BlackRock’s chief investment officer of global fixed income, said last week.

    Meanwhile, the Bank of Japan offered its most optimistic view of the country’s regional economies in more than a decade on solid exports and private consumption, underscoring its conviction a steady recovery is gathering momentum.


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    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