Eurozone bond yields are falling, with the focus on Eurozone inflation.


Yields on government bonds from the peripheral countries of the euro zone fell by only 0.2%.
European inflation rates are currently the focus of attention.
10-year German bonds briefly rose to their highest level since the beginning of June, at -0.372% in early trading.

Yields on eurozone bonds fell from their recent early trading highs on Tuesday, September 1, 2020 to their highest level since the beginning of June, following the German August levels.

According to a survey by Reuters, the information showed an inflation figure with only a decline of about 0.2%, although we could see a further decline into negative territory.

The data followed the reading in Germany on Monday and showed that consumer prices fell for the first time in more than four years, causing a small market shake.

Euro-Zone inflation figures were the focus of attention this week following the Fed’s announcement

The measurement of inflation in the Euro-Zone was in the spotlight after the Federal Reserve announced last week that it would start targeting an average inflation rate of 2% for certain periods of time instead of using an annual target. Nevertheless, this announcement lowered the yield curves in both Europe and the United States.

UniCredit’s analysts commented as follows,

“Given the ongoing debate about whether the Fed’s recent move to an average inflation target will put pressure on other central banks to follow the example of other central banks, investor focus on break-even is likely to remain high. In this context, it should be noted that break-even inflation in the eurozone has risen comparatively less than in the US”.

Inflation measurements in Germany and the Euro-Zone will be monitored in the coming week

Christoph Rieger, Head of the Fee and Credit Rating Analysis Department at Commerzbank, also informed customers of this:

“The first signs of euro inflation in August from France should underline the challenges central banks face in meeting their inflation targets”.

He also added after the mention of inflation expectations:

“This means that euro break-even breaks in pre-crisis areas retain the potential for setbacks, and we still see higher value in the purchase of German government bonds, which are falling above -0.4% of 10-year yields.

It is important to note that the 10-year German bond has briefly risen to its highest level since the beginning of June with -0.372% in early trading.

The recent downturn has continued to raise some concerns in the market. The 10-year bond fell one basis point to -0.41%, below its recent highs following the Fed’s announcement. Some analysts consider the rise in inflation expectations in the market to be unsustainable.

Germany plans to sell EUR 600 million of inflation-linked bonds in 2026 and 2046 in the primary market, and market experts say that this could become effective with an announcement. On the other hand, yields on Italian bonds also peaked in June at around 1.17% in early trading, but were recently cut by three basis points to 1.13%.

Isabel Schnabel, a bond member of the European Central Bank, explained that the eurozone has no reason to step up its stimulus measures. The readings in Germany and the Euro-Zone will keep a close eye on changes in the coming weeks.


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