LONDON, Nov 1 — Euro zone government bond yields steadied near two-week lows today and were set for their biggest weekly decline in five weeks as Christine Lagarde began her presidency of the European Central Bank.
A US interest rate cut and renewed concern about US-China trade talks have boosted bond markets this week, pushing euro zone yields down after they recorded their biggest monthly rise since early 2018 in October, as worries about a no-deal Brexit eased.
Analysts said the resumption of asset purchases by the ECB this week also helped euro zone bonds, with focus turning to the policy outlook under Lagarde, whose eight-year term began today.
Creating the broadest possible consensus and making sure the ECB speaks with one voice should be Lagarde’s top priorities, current and former policymakers told Reuters.
The decision to resume asset purchases has divided the central bank and fuelled a perception in markets that the bar to further monetary easing is high.
Having discounted an ECB depo rate of close to -0.8 per cent just a couple of months ago, the market no longer discounts another cut of 10 basis points in 2020.
“It’s pretty clear that Lagarde has an uphill task in trying to promote unity that leads to a coherent set of policies going forward,” said Philip Shaw, chief economist at Investec. “Her own views can be characterised as continuity with” former ECB chief Mario Draghi.
In early trade today, most 10-year bond yields were little changed, near two-week lows struck yesterday.
Germany’s 10-year Bund yield was around -0.40 per cent, near yesterday’s low of -0.42 per cent.It is down around three basis points this week and set for its biggest weekly drop in five weeks.
French and Dutch 10-year bond yields were also set for their biggest weekly falls since late September.
Lagarde will initially keep her predecessor’s top aides, including his personal adviser, two sources close to the matter told Reuters yesterday.
“At the margin (this) might be a positive given policy continuity although it might depend on what you think of current policies,” Jim Reid, a strategist at Deutsche Bank, said in a note.
Lagarde will make her first public speech as ECB chief on Monday.
Focus was expected to turn to US data later today. Monthly jobs numbers and the Institute for Supply Management’s index of manufacturing activity are due.
Forecasts are the US economy created 89,000 new jobs in October, fewer than the 136,000 created in September, according to a Reuters poll. — Reuters
