Oil price rise pushes up euro zone debt yields

The European Central Bank (ECB) headquarters in Frankfurt, Germany, April 26, 2018. — Reuters pic
The European (ECB) headquarters in Frankfurt, Germany, April 26, 2018. — Reuters pic

LONDON, April 23 — Government yields in the euro area nudged up today, as oil prices rose to their highest levels this year and the European Central Bank’s Benoit Coeure said he sees no argument for tiered deposit rates.

Still, the outlook for bond markets remained favourable, analysts said, given that last week’s closely-watched manufacturing activity data from Germany, the bloc’s biggest economy, suggested economic conditions remained weak.

Germany’s benchmark 10-year bond yield was up two basis points at 0.04 per cent in early trade but was still six bps below the four-week highs hit before Thursday’s PMI data.

“The 10-year Bund yield will remain near zero per cent if we don’t see a rebound in sentiment indicators,” said DZ Bank rate strategist Sebastian Fellechner, adding that tomorrow’s German Ifo sentiment survey may provide the next steer for markets.

crude oil prices rose to their highest level this year after Washington announced all Iran sanction waivers would end by May, pressuring importers to stop buying from Tehran.

This lifted expectations and alongside comments from the ECB policymaker Coeure put some upward pressure on bond yields.

In an interview published today, Coeure said that lenders should focus on their costs rather than blame the ECB’s negative rate for their low profits and hinted that the upcoming round of multi-year loans to banks should not be as generous as the previous.

Growing talk that the ECB could take action to offset the impact of negative rates has fuelled speculation that interest rates in the bloc will remain stuck below zero per cent for a protracted period, helping push down bond yields in the past month.

Across the euro area, 10-year bond yields were 1-2 bps higher on the day, with Italian bond yields up almost five bps at 2.64 per cent.

Analysts said tensions within the ruling coalition government helped explain the underperformance in Italian bonds.

Italy’s coalition partners clashed angrily on Friday over mutual allegations of corruption, with relations between the League and 5-Star Movement at their lowest ebb since they formed a government last May. — Reuters

Source: The Malay Mail Online

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