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  1. Euro zone yields rise as focus shifts from Brexit to supply

Euro zone yields rise as focus shifts from Brexit to supply

Borrowing costs in the euro zone rose for the first time in more than a week on Monday as investors took prices down to make room for some 20 billion euros of bond supply from the region this week, halting a post-Brexit slide in yields.

By: | London | Published: July 4, 2016 1:59 PM
Since Britons' vote to leave the European Union in a June 23 referendum, bond markets across the euro zone have benefited from expectations of further European Central Bank (ECB) stimulus to offset the economic fallout of Brexit. (Reuters) Since Britons’ vote to leave the European Union in a June 23 referendum, bond markets across the euro zone have benefited from expectations of further European Central Bank (ECB) stimulus to offset the economic fallout of Brexit. (Reuters)

Borrowing costs in the euro zone rose for the first time in more than a week on Monday as investors took prices down to make room for some 20 billion euros of bond supply from the region this week, halting a post-Brexit slide in yields.

Austria, Germany, Spain and France are due to hold bond auctions and there is talk that Spain could also announce plans to sell new 10-year paper via a syndication to take advantage of a tumble in government yields in the past week.

Since Britons’ vote to leave the European Union in a June 23 referendum, bond markets across the euro zone have benefited from expectations of further European Central Bank (ECB) stimulus to offset the economic fallout of Brexit.

Spanish 10-year bond yields, which rose the day after the British vote as investors dumped risk assets, have tumbled 46 basis points (bps) since then and ended Friday with their biggest weekly fall for almost four years.

As well as talk of more ECB stimulus, Spanish bonds have gained on hopes that acting Prime Minister Mariano Rajoy will be able to form a new government.

His People’s Party failed to win a majority in elections on June 26 but won the most votes and increased its lead from an inconclusive ballot in December.

“The stage is now set for Spain to announce a new 10-year bond sale, with yields low and markets giving a bullish reaction to the Spanish election,” Commerzbank interest rate strategist David Schnautz said. “The question is, how much better can it get for Spain to issue a new bond?”

Spain’s 10-year bond yield was up 2 bps at 1.17 percent , moving off Friday’s more than one-year lows of 1.09 percent.

Across the euro zone, bond yields were 1-3 bps higher.

Mizuho Bank said the fact that Spain on Friday said it will not sell 10-year bonds at an auction on Thursday is another clue that a new 10-year issue is coming.

Spain plans to issue bonds due in 2021, 2024, 2025 and 2030. Austria will sell 1.1 billion euros of bonds on Tuesday, Germany holds a 2-year bond sale on Wednesday and France will sell 9 to 10 billion of fixed-rate, long term bonds on Thursday.

Last week, Italy sold the top planned amount at a bond auction, paying record-low yields on a five-year note thanks to hopes for more ECB stimulus following Brexit.

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