⌛ Did you miss ProPicks’ 13% gains in May? Subscribe now & catch June’s top AI-picked stocks early.Unlock Stocks

German bond yield curve most inverted in nearly 31 years

Published 27/06/2023, 08:55
© Reuters. FILE PHOTO: President of European Central Bank Christine Lagarde listens during the closing session of the New Global Financial Pact Summit, Friday, June 23, 2023 in Paris, France. Lewis Joly/Pool via REUTERS
ALVG
-

By Stefano Rebaudo and Alun John

(Reuters) -The German yield curve was at its most inverted level since 1992 on Tuesday with yields at the rate-sensitive short end of the curve rising more than at the long end.

Germany's 2-year government bond yield, most sensitive to expectations for policy rates, rose nearly 10 basis points (bps) to 3.24%. Last Friday, it hit 3.282%, its highest level since March 9.

Germany's 10-year yield, the bloc's benchmark, rose less, up 6 bps at 2.36%, leaving the gap between the two at -88.3 basis points, its most inverted since September 1992.

The rise in yields in the European afternoon mirrored a move higher in U.S. Treasury yields after U.S. data came in better than expected, suggesting the Federal Reserve may have to keep interest rates elevated for longer to slow the economy and bring inflation back towards target.

Earlier in the day ECB President Christine Lagarde on Tuesday outlined a lengthy fight against price growth that must dampen demand and force firms to curb prices.

It was Lagarde's first public speech following the weak PMI and Ifo data which added to doubts about the health of the bloc's economy.

Money markets still bet that the deposit facility rate would peak around 4%.

"Markets have priced two more rate hikes after the ECB's last policy meeting; I think they need more data to change their view," said Massimiliano Maxia, senior fixed income specialist at Allianz (ETR:ALVG) Global Investors.

Italy's 10-year government bond yield rose 5 bps to bps to 3.99%.

The spread between Italian and German 10-year yields, a gauge of confidence towards the euro area's most indebted countries, was a touch tighter at 161 bps. It was around 220 bps at the end of last year.

Investment funds have been piling back into fixed-income assets to lock in the higher returns on offer, with the euro zone's peripheral bonds in the spotlight as they deliver enticing yields while benefiting from an ECB backstop – the Transmission Protection Instrument - to avoid risks of disorderly bond sell-offs.

Greece's bonds outperformed their peers after Kyriakos Mitsotakis' centre-right New Democracy party got 158 seats in the 300-seat parliament in the repeat election on Sunday, well ahead of the 48 secured by leftist Syriza.

© Reuters. FILE PHOTO: President of European Central Bank Christine Lagarde listens during the closing session of the New Global Financial Pact Summit, Friday, June 23, 2023 in Paris, France. Lewis Joly/Pool via REUTERS

Greece's 10-year government bond yield rose less than peers, up 2 bps at 3.59%.

The yield gap between Greek and German 10-year yields was 116 bps after last week hitting its lowest since October 2021, below 110 bps. The Greek-Spanish yield spread on Friday hit 25 bps, its lowest level since 2008.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.