Saturday 18 August 2018

Euro bonds steady amid clues from Fed

Traders work on the floor of the New York Stock Exchange (NYSE)
Traders work on the floor of the New York Stock Exchange (NYSE)

John Geddie

Europe's benchmark bond yield steadied yesterday after its biggest daily drop in seven weeks.

The yield on Germany's 10-year bond, seen as a safe store of cash in times of stress, slid six basis points on Monday after an unexpectedly weak election result for German Chancellor Angela Merkel and after North Korea accused the United States of declaring war.

When European trading began yesterday, Germany's yield edged up slightly.

"Investors are not fully up to speed with the risk of hawkish signals from Fed officials," Mizuho strategist Antoine Bouvet said.

"The Fed is back in a situation where it would want to show optimism at the very least, and the market should be pricing in more hikes in the coming months and quarters than it is currently."

According to CME's FedWatch tool, money markets point to a 70pc chance of a hike in December but only a 20pc chance of a further hike in March 2018.

Analysts said a rise in oil to a 26-month high, which bolsters inflation, and a sale of two-year German debt also kept upward pressure on yields.

Yet again, the market's reaction to the latest escalation in tension between North Korea and the United States proved short-lived.

Yields on US Treasuries and German Bunds fell to a day's low when North Korean Foreign Minister Ri Yong Ho said on Monday that Twitter comments from US President Donald Trump amounted to a declaration of war.

It marked the latest heightening of tensions.

Both traded back up on yesterday in what analysts say reflects a widespread belief that diplomacy will prevail. In late trade yesterday, German 10-year yields rose around 1.5 basis points to 0.41pc, off an 11-day low of 0.395pc hit on Monday. All other Eurozone bond yields were also a touch higher. (Reuters)

Irish Independent

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