German government bond yields rise ahead of ECB monetary policy meeting

Band Stefano Rebaudo

March 9 (Reuters)Eurozone government bond yields rose on Wednesday as investors await Thursday’s European Central Bank policy meeting amid a rebound in risky assets and concerns over the economic impact of war in Ukraine. .

European stocks climbed 3.1%, recovering ground after three days of declines.

The Kremlin said the United States had declared economic war on Russia and that Moscow would think seriously about what to do after US President Joe Biden banned imports of oil and other Russian energy.

Liquidity has dried up since the outbreak of the war, while market dynamics have triggered large swings in yields.

The yield on Germany’s 10-year government bond, the benchmark for the eurozone, rose 6 basis points (bps) to 0.171%. DE10YT=RR

The ECB will wait until the final months of this year for its first interest rate hike in more than a decade, according to a Reuters poll taken after Russia invaded Ukraine.

“As long as ECB normalization is on the table, any dip below 0% in 10-year Bund yields will be short-lived,” ING analysts added.

The European Commission has published plans to cut the EU’s dependence on Russian gas by two-thirds this year and end its dependence on Russian fuel supplies “well before 2030”.

“A possible European Union plan to jointly issue bonds to fund energy and defense is supporting peripheral bond prices while weighing on bonds in core countries that will bear the burden of more government spending,” said Fabio Castaldi, chief investment officer at Pictet Asset. Management.

“Despite some lukewarm denials, markets believe the EU will discuss and release details of such a plan in the coming days,” he added.

Peripheral government bond prices outperformed their peers, with the Italian 10-year yield rising 2 basis points to 1.621% IT10YT=RR

Spanish and Portuguese 10-year borrowing costs rose 3 and 2.5 basis points ES10YT=RR, PT10YT=RRrespectively.

Commerzbank analysts said joint EU bond issues would allow the ECB to focus on the trade-off between tackling stagflation and removing stimulus.

Money markets are currently pricing in an ECB rate hike of around 30 basis points by the end of the year. IRPR

ING analysts said in a note that a possible joint EU fiscal response to the energy crisis had become one of the hot topics alongside geopolitical tensions and sanctions.

The spread between Italian and German 10-year yields was 143 basis points, after narrowing by around 15 basis points on Monday amid expectations of looser fiscal rules and a possible sharing of debt between EU members. DE10IT10=RR

A key market indicator for long-term eurozone inflation expectations stood at 2.204%, just below the highest level since December 2013 when it hit 2.2768% on Tuesday. EUIL5YF5Y=R

Oil prices firmed on fears of a potential supply shock as the United States banned imports of Russian oil.

The yield on German inflation-linked government bonds rose 12 basis points to -2.2233%, its biggest daily rise since Feb. 3, after hitting a record low of -2.531% on Monday. DE10YIL=RR

rate hikes

(Reporting by Stefano Rebaudo Editing by Kim Coghill and Mark Potter)

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James R. Rhodes