TEHRAN, August 19 -Bond yields in the euro zone were off record low levels on Monday, as a calmer tone settled in world markets and focus turned to the prospect of fiscal stimulus in Germany.
TEHRAN, Young Journalists Club (YJC) -Germany has the fiscal strength to counter any future economic crisis “with full force”, Finance Minister Olaf Scholz said on Sunday, suggesting Berlin could provide up to 50 billion euros ($55 billion) of extra spending.
That followed a report on Friday that Germany was prepared to ditch its balanced budget rule and take on new debt to counter a possible recession, pushing bond yields higher.
“The point which is being missed is that said German fiscal stimulus is conditional on a recession, and existing law already allows for this,” said Peter Chatwell, head of rates strategy at Mizuho.
“The European Central Bank would probably restart QE (quantitative easing) before the German fiscal taps were at risk of being nudged open.”
Hopes of fresh stimulus measures from major economies have helped soothe global recessionary fears. World stock markets were also cheered by a decision from China’s central bank to alter the way it sets a key interest rate benchmark, a move seen by analysts as reducing borrowing costs for companies.
In early Monday trade, most euro zone bond yields were steady but off recent lows.
Germany’s 10-year bond yield was steady at -0.69% DE10YT=RR, above record lows hit last week at around -0.73%. German 30-year bond yields were also off record lows, trading at -0.22% DE30YT=RR.
Outside the euro zone, Japanese bond yields nudged away from three-year lows and U.S. Treasury yields rose 2-3 basis points with focus on reports that the U.S. government may issue 50 or 100-year bonds.
Italy’s bond yields fell 2-4 bps IT10YT=RR, outperforming euro zone peers.
Italy’s anti-establishment 5-Star Movement said on Sunday that Matteo Salvini, leader of the far-right League, was no longer a credible partner, apparently closing the door on any possibility of resurrecting the ruling coalition.
The League has put forward a motion of no confidence in the government, but 5-Star and the opposition Democratic Party refused to debate it and are discussing forming a coalition among themselves.
“There is growing support for a left, multi-party caretaker government,” said DZ Bank rates strategist Rene Albrecht. “Maybe there is a hope to avoid an immediate snap election, so this may be helping BTPs,” he said, referring to Italian bonds.
Source: reuters