Euro zone bond yields at six-week highs, bond auctions in focus

Time of India

6 hours ago

Germany's longer-dated bond yields hit six-week highs on Tuesday, as an absence so far of additional U.S. tariffs on the European Union left
markets
to focus on European spending and borrowing.
That attention on borrowing was underscored on Tuesday by a series of bond auctions in Europe, while a rise in Japanese yields added further pressure to
euro
zone bonds.
Germany's 10-year bond yield, the euro zone benchmark, rose 4 basis points to 2.64%, after earlier touching its highest since May 21.
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Euro zone bond yields at six-week highs, bond auctions in focus
Germany's longer-dated bond yields hit six-week highs on Tuesday, as an absence so far of additional U.S. tariffs on the European Union left markets to focus on European spending and borrowing.
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As the German two-year yield was up just 2.5 bps at 1.87%, the gap between the two widened, or, in market parlance, the German yield curve steepened.
The German 2-10 curve is now at its steepest since late May, with the gap between the two at 77.6 bps.
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Trade
remained the main focus for markets on Tuesday after U.S. President
Donald Trump
on Monday told partners including powerhouse suppliers such as Japan and South Korea that they would face sharply higher tariffs from August 1.
The EU will not be receiving a letter setting out higher tariffs, EU sources familiar with the matter told Reuters on Monday.
The EU still aims to reach a trade deal by Wednesday after European Commission President Ursula von der Leyen and Trump had a "good exchange," a Commission spokesperson said.
Bond analysts at ING also flagged that the August 1 date for new tariffs to kick in suggested more time to negotiate deals.
"In rates markets the positive trade news is being translated into more steepening pressures," they wrote in a note.
"We think more clarity around trade is a prerequisite for rates to drift higher as it allows markets to focus more on the EU and German spending stories."
HIGHER BORROWING
Germany plans to increase spending significantly on defence and infrastructure, and analysts expect the greater borrowing this will require will cause longer-dated yields to rise.
That has particularly affected very long-dated yields, and Germany's 30-year yield was up 4 bps at 3.16% on Tuesday. It rose earlier to just a whisker away from the 3.164% it hit on May 22, which was its highest since March.
In contrast, rate-sensitive short-dated bond yields are kept in
check
by the European Central Bank's fears of a major slowing in inflation that would cause them to cut rates further.
Tuesday also sees significant bond issuance by European countries, reinforcing the focus on debt supply. Germany issued a 5-year bond, which saw bids well below the average of the last three issues.
Also issuing bonds on Tuesday are the EU, the Netherlands, Austria and Britain.
Analysts at Rabobank also flagged the impact of a rise in Japanese yields. Investors there are looking ahead to an upcoming upper house election, at which polls indicate the ruling Liberal Democratic Party and its coalition partner are at risk of losing their majority.
The 30-year JGB yield jumped 9 basis points (bps) to 3.055%, its highest since May 23.
Back in Europe, most other bonds were trading in line with German benchmarks.
Italy's 10-year yield rose 4 bps to 3.56%, again its highest since late May.
France's 10-year yield hit a three-month high and was last at 3.358%, up 3 bps on the day.