UPDATE 2-Euro zone bond yields jump as reflation trade bites

  • 2/15/2021
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* German, French, Dutch 10-yr bond yields highest since Sept * German 30-Bund yield at 30-month high * Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices) LONDON, Feb 15 (Reuters) - Most euro zone bond yields rose sharply on Monday, climbing to multi-month highs as reflation expectations gripped markets in the face of brighter world growth prospects and optimism over the rollout of the coronavirus vaccine. A selloff in safe-haven German debt was exacerbated by the perception of reduced risk surrounding Italy, where trusted former European Central Bank chief Mario Draghi was sworn in as prime minister on Saturday. Draghi, who will lead a unity government, is tasked with steering the country out of the pandemic and an economic slump. Oil prices rose to their highest in around 13 months, adding to expectations that inflation could pick up pace. “We have this reflation trend in the U.S. which is having an impact in Europe,” said DZ Bank rates strategist Daniel Lenz. “We also have a discussion in Europe over whether inflation will go up, while new coronavirus infections are going down and there are hopes that restrictions will soon be lifted, which will be good for the economy.” Ten-year bond yields in Germany, France and the Netherlands all rose to their highest since September. Belgium’s 10-year bond yield rose to -0.08% , its highest since July. Germany’s 10-year Bund yield rose 5 basis points to a 5-1/2 month high at -0.376%, while 30-year bond yields, up 20 bps so far this month, rose to an eight-month high at 0.13% . They had traded in negative yield territory earlier this month. So far U.S. Treasury yields have led the selloff in major bond markets, given expectations for more U.S. fiscal stimulus. While U.S. markets were closed on Monday for a holiday, the selloff in European bonds gained momentum. British gilt yields rose to their highest since last March. In Switzerland, 30-year bond yields are within striking distance of the 0% mark, having risen 22 bps so far this month to -0.013% . Some 10-year euro area bond yields were also moving closer to positive territory. Ireland’s 10-year bond yield has risen to -0.05% from -0.28% at the end of 2020. “The reflation sentiment remains alive and kicking, although with chances for near-term consolidation in Bunds following the latest selloff,” said Commerzbank strategist Rainer Guntermann. Italian bond yields were also higher on Monday. Italy’s 10-year bond yield was up 4 bps on the day at 0.53%, still within sight of last week’s record lows. There was some focus on Spain, where separatist parties won enough seats in Catalonia’s regional parliament on Sunday to strengthen their majority. However, a strong showing for the local branch of Spain’s ruling Socialists pointed to a dialogue, rather than breakup, with Madrid.

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