Germany’s 10-year yield is below 1% due to the focus on growth concerns

ryanniesMay 19, 2022

Germany’s 10-year bond yield fell below the 1% level, which was carefully watched on Thursday. This is because the fall in US stocks the day before refocused on growth concerns.

European markets are worried about the U.S. economy due to soaring prices as retailers target lose about a quarter of the stock market’s value following a sharp drop in U.S. stocks and Treasury yields on Wednesday. I made it embossed.

Germany’s 10-year yield, the eurozone benchmark, fell 8bps to 0.93% by 1101 GMT.

The two-year yield, which is sensitive to interest rate expectations, fell 2 bps to 0.34%.

This further flattened the German yield curve’s 2/10 year segment from 5bps to 59bps.

This week, as with the US move, the curve has flattened sharply as another sign of growth concerns.

Investors have slightly reduced their bets on rate hikes from the European Central Bank and expect to raise rates by about 105 bps by the end of the year, compared to Wednesday’s 110 bps.

Rabobank Senior Rate Strategist Lin Graham Taylor said:

“The interesting dynamics here that show that we are focusing on the negative growth side is that peripherals are actually expanding and some pricing is seen from the ECB’s expectations of a hike … it’s a growth-driven move. It shows that there is, “he added.

Italy’s 10-year yield fell 5bps on Thursday, increasing the risk premium on the high-profile German bond from Wednesday’s 192bps to 196bps.

Growth concerns have also hit corporate bonds, sending Markit’s iTraxx Europe crossover CDS index. This effectively measures the cost of insurance against the default of the underlying high yield bond basket, which is the highest since May 2020 at 493bps.

The main index, which measures the cost of guaranteeing investment grade exposure, has risen above 100 bps to its highest since April 2020.

Elsewhere, the three-month Euribor interbank borrowing rate rose 5.5 basis points this week. This is the largest rise each week since the heightened market panic against the COVID-19 pandemic in April 2020, when financial conditions became tight.

Fixed at -0.348% on Thursday, the rate was the highest since June 2020.

“It is very likely that the ECB will raise rates at the July meeting … this will, for the first time since April 2011, raise interest rates on the eurozone money markets, which are rising due to monetary policy,” UniCredit said.

Investors are currently focusing on the minutes of the European Central Bank’s April meeting scheduled for 1230 GMT.

ECB communication is progressing rapidly, policymakers are publicly seeking a positive policy rate this year and have not ruled out a 50 basis point rate hike, but the minutes allow the ECB to accelerate the rate hike. Sexual clues and analysts said it was a tool to contain market fragmentation.

(Report by York Bahceli; edited by Susan Fenton and Bernadette Baum)