UPDATE 1-German 10-year yield to 3-month low as bonds retain support
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July 16 (Reuters) – The German 10-year yield fell to a new three-month low in calm trading on Friday as markets sought direction ahead of next week’s European Central Bank meeting.
With no major Eurozone data releases on Friday, and with ECB policymakers entering their period of silence ahead of next Thursday’s meeting, analysts said government bond yields would be determined. by the news around the coronavirus.
“The spread of the more infectious Delta variant is the main emerging threat at the moment, with COVID-19 cases again on the rise globally and in most G7 economies,” said Jim Reid, strategist of the Deutsche Bank.
On Friday, the German 10-year yield, the block’s benchmark, fell one basis point to -0.347%, the lowest since April 8.
Italy’s 10-year yield fell similarly to 0.72%, with the closely watched premium it offers on German 10-year bond yields at 105bp. It struggled to stay below 100bp this week.
German and Italian government bond yields were expected to end the week lower for the third week in a row. US Federal Reserve Chairman Jerome Powell’s dovish comment this week pushed yields lower, on top of the strong rally last week, when bets against rising US Treasury yields were unwound and growth assumptions have been called into question.
Analysts expect Eurozone bond yields to remain weak in the coming weeks, given the supply outlook for the block.
UniCredit analysts expect debt management agencies to issue around € 50 billion over the next four weeks, half of the issuance of the past four weeks, which will be more than offset by repayments and upcoming coupon payments.
“With a noticeable supply slowdown and net issuance poised to turn decidedly negative over the next two weeks, the hunt for yield is likely to continue, then capture non-core curves again, as long as the ECB does not miss out. not deliver, ”said Christoph Rieger, Head of Rates and Credit Research at Commerzbank.
In data, final inflation in the euro zone in June stood at 1.9% over one year, slowing down from 2% in May and confirming a first estimate.
In the United States, retail sales figures are due at 12:30 p.m. GMT and consumer sentiment data from the University of Michigan is due at 2:00 p.m. GMT.
Later Friday, Fitch Ratings will review Greece’s credit rating, currently two notches below investment grade territory with a stable outlook.
Reporting by Yoruk Bahceli Editing by Mark Heinrich and Andrew Heavens