LONDON, May 26 — Germany’s benchmark 10-year Bund yield rose to a one-week high today 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 (RM60.5 billion) 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 per cent. 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 yesterday at around 1.57 per cent, with focus remaining on a European Commission recovery plan to be released tomorrow.
A €500 billion 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 yesterday that the flexibility of the ECB’s €750 billion 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. — Reuters