Tue. Jan 25th, 2022

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MILAN — Euro zone bond yields were steady on Friday with Germany’s 10-year bond yields moving away from the 0% threshold as markets stabilized after a heavy selloff in the last few weeks.

U.S. Treasury and euro zone bond yields have risen in January on expectations that U.S. interest rates could rise as soon as March, leaving investors preparing for tighter monetary conditions to tackle booming inflation.

But borrowing costs in Europe and the United States fell on Wednesday after a U.S. inflation reading was not as high as some had feared.

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“This week’s key data and hearings presented the final confirmation that central banks are under pressure to react to inflation staying higher for longer. Markets had been well ahead of the game, yields having risen significantly since mid-December, and are now taking a breather,” ING strategists said.

“The bounce back of bonds could find further support in today’s data where U.S. retail sales are seen coming in softer being dragged lower by falling auto sales,” they added.

U.S. December retail sales, due later in the day, are expected to be unchanged, according to a Reuters poll.

By 0820 GMT, Germany’s 10-year yield was flat at -0.087% after having risen as high as -0.014% on Tuesday, approaching positive yield territory for the first time since May 2019.

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It is down almost 6 bps this week, having risen for the past three weeks in a row.

Elsewhere, Italy’s 10-year bond yields were up almost 1 basis point at 1.30%

UniCredit strategists said another driver for Thursday’s euro zone bond yield fall “could be ECB purchases, which should have returned to roughly 10 billion to 15 billion euros per week,” referring to the European Central Bank’s bond buying stimulus.

Investors will turn their focus later on Friday to a speech by ECB President Christine Lagarde.

ECB Vice President Luis de Guindos said on Thursday that the euro zone’s inflation spike was not as transitory as earlier thought. (Reporting by Sara Rossi; Editing by Edmund Blair)

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