Eurozone yields are slightly higher but investors remain cautious on the Delta variant
* Eurozone Periphery Government Bond Yields tmsnrt.rs/2ii2Bqr
LONDON, July 5 (Reuters) – Eurozone government bond yields rose on Monday, but analysts expect the recent bearish path to resume after U.S. wage data from the last week failed to distract investors from the security of fixed income.
The 10-year German Bund yield fell 8 basis points last week – its biggest weekly decline since December 2020.
Analysts attributed the decline in eurozone yields to caution about the economic impact of the Delta variant of COVID-19 as well as expectations that the European Central Bank will remain accommodating.
The US jobs report on Friday signaled that the economic recovery remained intact but did not warrant any immediate withdrawal of the Federal Reserve’s stimulus measures. The data had little impact on US Treasury yields, which also ended the week lower.
The next test for bond markets will be the minutes of the June meeting of the Federal Open Markets Committee, which will be released on Wednesday. At that meeting, the Fed surprised markets by signaling two rate hikes by the end of 2023.
At 07:06 GMT, the yield on the German 10-year Bund was up half a basis point to -0.231%.
The French, Italian and Spanish 10-year benchmarks rose by one basis point.
“The outlook for risk sentiment remains clouded by the increase in COVID-19 cases in many places around the world. Interestingly, these concerns are more clearly seen in rates than in other markets, ”ING rate strategists wrote in a note to clients.
“This is not unusual in an era when central banks retain a heavy hand in pricing financial assets. The logic is as follows: a further deterioration in the outlook would lead to an even slower course of monetary support measures. “
ING has said it expects eurozone rates to drop over the next few days.
Commerzbank rate strategist Rainer Guntermann wrote that he expects the German 10-year yield to remain between -0.1% and -0.25% for most of the summer, and that it drops over the next few days.
ECB President Christine Lagarde is due to speak at a roundtable at 09:00 GMT, while Vice President Luis De Guindos is due to speak at 17:00 GMT.
PMI data for Europe is also expected throughout the morning, but should not move fixed income markets.
Eurozone inflation could approach the European Central Bank’s target of just under 2% “in the medium term” as the coronavirus pandemic is under control and public spending fuels sustained economic growth , said Isabel Schnabel, member of the ECB’s board of directors, on Saturday. (Reporting by Elizabeth Howcroft; Editing by Kirsten Donovan)