Bonds slump as BoJ fuels stimulus fears
Irish and European government bonds tumbled yesterday, pushing up borrowing costs for all euro-area sovereigns, as the Bank of Japan's decision to leave monetary policy unchanged dampened speculation that central banks will increase debt purchases.
Spanish 10-year yields climbed to the highest level in two months as European stocks slumped. Portuguese and Irish bonds also slid after European Central Bank president Mario Draghi told German television on Monday that debt buying would only be used to target prices that are out of line with fundamentals.
German 10-year yields rose to the most in more than three months as a court began hearings on the ECB's stimulus plan.
"Investors are realising that very low funding rates aren't set in stone and that's feeding through into the euro-rates market," said Michael Leister, an interest-rate strategist at Commerzbank in London.
"We are seeing a lot of volatility and the jury remains out on exactly what the BoJ will achieve. European bonds remain under pressure and the picture looks weak."
Spain's 10-year yield increased six basis points to 4.65pc yesterday afternoon, while Irish equivalents advanced 13.9 points to 4.22 pc.
The BoJ ended a two-day meeting in Tokyo yesterday, leaving its plans for the annual increase in the monetary base unchanged and refraining from extending the maturity of loans to banks. Twenty of 23 economists surveyed before the decision forecast the BoJ would approve loans of two years or longer or said such a move was possible.
Volatility on Greek bonds was the highest in euro-area markets followed by those of Portugal and Belgium, according to measures of 10-year debt.
"No potential buyer wants to stand in the way of the tide of selling," said Ciaran O'Hagan, head of European rates strategy in Paris.
German bonds have handed investors a loss of 1.2pc so far this year. Greek bonds have returned a 32pc profit, Ireland's gained 6.1pc, Spain's rose 5.8pc and Italian bonds rose 3pc. (Bloomberg)