German bond yields edge lower as inflation angst subsides
Tuesday, 4 October 2022
Germany's government bond yields edged lower on Monday, with gilts out of the spotlight, amid signals that the European Central Bank (ECB) might be on top of surging inflation, reports Reuters.
Gilt 2-year yield was down 9 basis points (bps) to 4.19% and the 10-year down 2 bps to 4.1%. , after British Prime Minister Liz Truss reversed plans to cut the highest rate of income tax.
"Gilts are no longer in the spotlight. The main issue for the euro area is still inflation after last week's data," Massimiliano Maxia, senior fixed income specialist at Allianz Global Investors, said.
"Even if the market could start buying bonds around the current levels. We think that the 10-year Bund, with its yield at around 2.2%, could be a good buying opportunity," he added.
Germany's 10-year government bond yield, the benchmark for the euro zone, fell 1 bps to 2.1% .
Analysts argued that instances of outsized rate swings produce high correlations across markets, which tend to increase with the magnitude of the shock.
They also expect the correlation between UK and euro area bond prices to decline sharply as volatility subsides and UK's policy trajectory has limited read-through to the bloc's rates.
A key market gauge of long-term inflation expectations was at 2.13%, after falling to its lowest over six weeks at 2.07% on Friday last week.