A split in euro zone bond markets, created by worries around Britain’s upcoming vote on its EU membership, narrowed for a second straight day on Monday after polls showed the ‘remain’ camp recovering some momentum.
Yields on German bonds — the top-rated debt in the bloc seen as a refuge in time of stress — rose to a 10-day high while investors returned to southern European bonds and stocks which carry more risk but offer greater returns.
This trend started late last week after the murder of a British lawmaker was seen reducing the chance of a Brexit vote on June 23, and continued on Monday after three weekend polls showed the ‘remain’ camp had regained its lead over ‘leave’.
“It might be possible that the events influenced the polls but most experts commented that it is more likely that an expected and well documented ‘pull to the status-quo’ is responsible for the latest swing,” RBC’s chief European macro strategist Peter Schaffrik said.
German 10-year bond yields rose 2 basis points to 0.04 percent, the highest since June 13 and up 8 bps from a record low of minus 0.037 percent seen before Thursday’s fatal attack on Jo Cox, an ardent supporter of EU membership.
The only opinion poll fully carried out since the killing showed support for “In” at 45 percent, ahead of “Out” on 42 percent – a reversal of the 3-point lead the pollster, Survation, showed for ‘Out’ in a poll conducted on Wednesday.
Two other polls published on Saturday showed the ‘remain’ campaign in the lead, while another showed the two camps running neck and neck.
The British pound climbed more than 1 percent on Monday, extending a recovery from last Thursday’s more than two-month trough, while bookmakers odds also showed the chance of Brexit sharply receding.
Lower-rated bonds in Europe’s southern periphery — which are seen as the most vulnerable to the economic and political headwinds that could arise from Brexit — recovered while stocks also found a firmer footing.
Spanish and Italian 10-year bond yields fell 5 bps to 1.51 percent and 1.40 percent, respectively, while Portuguese equivalents shed 6 bps to hit 3.28 percent.