Germany's 10-year yield back below 1% as risk appetite sours
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Loading... - Ruben Espinoza
- 19 May 2022
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Germany’s 10-year bond yield fell back below the closely watched 1% level on Thursday as risk appetite weakened following a slump in U.S. stocks a day earlier that brought growth fears back into focus.
European stocks slid in early trade, following a sell-off in U.S. equities and a sharp drop in Treasury yields on Wednesday, when retailer Target lost around a quarter of its stock market value, highlighting worries about the U.S. economy given surging prices.
Germany’s 10-year yield, the benchmark for the euro area, was down nearly 7 bps to 0.95% by 0750 GMT.
The two-year yield, sensitive to interest rate expectations, was down 3 bps to 0.34%.
Investors scaled back their bets on rate hikes from the European Central Bank slightly, now expecting around 105 bps of hikes by year-end, compared to 110 bps on Wednesday.
“It’s a catch-up with the decline in equities in the U.S. that carried on post-European market close and the decline in Treasury yields that also carried on,” said Lyn Graham-Taylor, senior rates strategist at Rabobank.
“The interesting dynamic here that shows you the focus on the negative growth side is that you’re actually seeing peripherals widen and some pricing out of the ECB hike expectations… It shows it’s a growth-led move,” he added.
Italy’s 10-year yield only dropped 3 bps on the day on Thursday, widening the closely watched risk premium over German bonds to 198 bps, from 192 bps on Wednesday.
Investors awaited the release of the European Central Bank’s April meeting minutes at 1230 GMT.
While ECB communication has moved rapidly, with policymakers calling publicly for a positive policy rate this year, and one not ruling out a 50 basis-point rate hike, the minutes may still provide clues about to what extent the ECB may frontload rate hikes and any signs of a tool to contain market fragmentation, analysts said. Read More...
