Euro zone bond yields edged up on Wednesday as equity markets recovered from a sudden slump a day earlier that had sent yields on the safe-haven assets falling sharply.
Stock markets fell 0.5% on Tuesday in a matter of minutes and further afterwards, leaving traders perplexed as to what was behind the move.
That was followed by U.S. Treasury secretary Janet Yellen’s comments that rate hikes may be needed to stop the economy overheating as a vast stimulus program boosts growth, which predominantly hit equity markets, but also cut the fall in bond yields.
Expectations of higher growth and inflation, predominantly driven by the U.S. stimulus program, have pushed bond yields higher on both sides of the Atlantic this year.
Yellen said later that she does not anticipate inflation would be a problem for the U.S. economy and any price increases would be transitory.
With European equity markets opening higher on Wednesday, bond yields, which move inversely with prices, edged up in early trade.
Germany’s 10-year yield, the benchmark for the region, was up 1 basis point to -0.22% at 0824 GMT, below its highest since March 2020 hit at -0.162% on Monday.
“I expect the (yield) curves in the eurozone and the U.S. to steepen, driven by better equity markets and ahead of the ADP and NFP print which should be supportive for the inflationary thesis,” said Sebastien Galy, senior macro strategist at Nordea Asset Management, referring to U.S. employment data due later this week.
In the primary market, Greece launched a new five-year bond via a syndicate of banks, while Germany re-opens a five-year bond via auction.
Greece’s deal comes after a rating upgrade by S&P in April, to BB. There is scope for a further upgrade given the positive outlook on the rating, now two notches below investment-grade, increasing the likelihood of Greece’s return to the investment-grade ratings it lost during its debt crisis a decade ago.
Commerzbank analysts expect Greece will raise 2.5 billion euros, while Reuters reported last week that it will raise another 4 billion euros from two bond issues this year.
On the data front, April services sector PMIs showed activity in Spain expanded for the first time since July, while it continued to contract in Italy. The euro zone composite PMI, which covers both manufacturing and services, rose more than initially estimated.
The U.S. ISM services PMI is due later on Wednesday. (Reporting by Yoruk Bahceli; editing by Philippa Fletcher)