Eurozone debt sold off as expectations of ECB rate hike increased

Short-term government borrowing costs in the euro zone rose to an eight-year high on Thursday after central bank officials said they could raise interest rates as soon as July.

The yield on Germany’s two-year bond – a benchmark for the entire eurozone that closely watches expectations for the path of European Central Bank interest rates – rose 0.13 percentage points to 0.18. percent, the highest level since 2014. Then. cut some of those gains to trade at 0.13%. Bonds with longer maturities were also hit, with Germany’s 10-year yield adding 0.03 percentage points to 0.89% in afternoon trade.

The moves come after ECB vice president Luis de Guindos said in an interview with Bloomberg that the central bank’s first rate hike since 2011 could take place as soon as July. His colleague Pierre Wunsch said in a separate interview with Bloomberg that the ECB could lift policy rates above zero before the end of 2022, bringing eight years of sub-zero interest rates in the eurozone to an end. .

The change in communication has shaken markets, and as recently as the start of the year, the ECB had expected the ECB to conduct monetary policy tightening more slowly than its counterparts in the UK and US.

“Four months ago, [Christine] Lagarde said it was very unlikely they would raise rates in 2022 and now we have. . . Governors talk about rate hikes in July,” said Bastien Drut, chief topical macro strategist at CPR Asset Management. “Things have changed,” he added.

The derivatives market is pricing the ECB deposit rate back to zero in October, from its current level of minus 0.5%.

ECB President Lagarde will participate in an IMF panel on the global economy later on Thursday along with Federal Reserve Chairman Jay Powell. Powell and Lagarde will give separate speeches on Thursday and Friday.

Central banks in Europe and the US have adopted a more hawkish stance as inflation rises to multi-decade highs and they try to keep their price growth expectations private. A closely watched metric that tracks market expectations for the eurozone’s inflation rate over a five-year period starting five years from now rose to 2.44% on Thursday. , the highest level in a decade.

The rise in Bund yields, seen as a support factor for eurozone borrowing costs, came as German exports fell 7.2%, according to national statistics agency Destatis. in March, according to the national statistics office Destatis, in the first set of economic data to reflect the impact of sanctions on Russia.

In the UK, short-term government bonds are under similar pressure, with the yield on the gold-plated two-year bond rising to its highest level since 2009 at 1.63%.

On the stock market, the Stoxx 600 regional European stock index rose 0.8%. Germany’s Dax index rose 1.5%, while London’s FTSE 100 gained 0.2%. France’s CAC 40 rose 1.8% later intense televised debate days before the final vote of the country’s presidential election.

Hedge funds helped push stock prices higher earlier this week, as they sought to remove negative bets. They were net buyers of North American stocks on Tuesday, according to a note sent to clients by top brokerage Morgan Stanley.

Futures that track Wall Street’s S&P 500 index were up 0.9% on Thursday, with the Nasdaq 100 contract up 1.3%.

Additional reporting by Laurence Fletcher

Source link


News7h: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button