By Stefano Rebaudo
MILAN – Euro zone bond yields picked up on Monday, steadying after falling sharply final week when markets scaled again their expectations for financial tightening by the European Central Financial institution because the battle in Ukraine confirmed no signal of cooling.
Analysts’ focus was nonetheless on this week’s European Central Financial institution coverage assembly. They see rising danger of stagflation however have combined views about how the central financial institution will reply to the potential financial affect of the Ukraine battle.
Germany’s 10-year authorities bond yield, the benchmark of the bloc, rose 1.5 foundation factors (bps) to -0.084%. It dropped 32.5 bps final week, its largest fall since November 2011, because the battle in Ukraine intensified.
“The ten March ECB assembly seemingly reads hawkish, particularly on (the) Asset Buy Programme (APP), for a market that has been pushing again in opposition to normalization,” Citi analysts stated in a analysis observe.
“Nonetheless, express delays or new easing appear unlikely amid additional inflation surprises,” they added.
Deutsche Financial institution economists “anticipate the Ukraine disaster to forestall the (European) central financial institution from saying Asset Buy Programme (APP) tapering at this level. The ECB‘s message will reinforce its dedication to cost stability and addressing fragmentation,” the German financial institution stated in a analysis observe.
Cash markets additional scaled again their bets on ECB rate of interest hikes on Monday and at the moment are pricing in 22 bps by the top of the 12 months, from lower than 25 bps late on Friday.
Brent crude soared to close $130 a barrel, its highest since 2008 as america and European allies are exploring banning imports of Russian oil, a transfer that may increase the danger of a stagflationary shock.
Italy’s 10-year authorities bond yield rose 6 bps to 1.582%, with the Italian German yield unfold widening to 165 bps.
This week’s ECB assembly “presents bearish euro length danger near-term, with the periphery probably the most susceptible. Certainly, BTPs go searching 8-20 bps wealthy versus different danger property,” Citi analysts stated.
Period measures the sensitivity of the worth of a bond or different debt instrument to a change in rates of interest.
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