Eurozone bond yields rise in thin trade


Dec 27 (Reuters) – Eurozone government bond yields rose in thin trade on Monday as investors focused on central bank tapering as they tried to gauge the potential impact on markets in the event of former ECB chief Mario Draghi was supposed to quit his job as Italian Prime Minister in January.

Parliament will meet in January to elect a new Italian president, and the former head of the European Central Bank is the most popular candidate. Draghi has signaled that he is ready to become head of state. Continue reading

Germany’s 10-year government bid yield, the bloc’s benchmark, rose 2 basis points to -0.228%, its highest level since November 25.

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“The bond markets were recently closed in response to Omicron’s fears,” said Massimiliano Maxia, senior fixed income specialist at Allianz Global Investors.

“I think the cost of borrowing is more likely to go up as governments cope with the pandemic, while central banks will likely need to hike rates to curb inflation,” he added.

Analysts warned of a possible spike in Italy’s risk premium as Draghi’s arrival in February 2021 boosted confidence in the country’s debt-ridden economy. You see early elections as the worst-case scenario.

However, Germany’s expected less stringent fiscal policy could support peripheral bond prices in 2022 before the European Union’s Stability Pact reform.

The yield on 10-year Italian government bonds rose 4 basis points to 1.165%, its highest level since November 1st.

“From a market perspective, there can be no better prime minister in Italy than Mario Draghi. His credibility is not matched by any other potential candidate who could take the office, ”said Valentijn van Nieuwenhuijzen, CIO of NN Investment Partners.

“Germany’s new political stance combined with the EU recovery plan provides a more supportive backdrop for peripheral bonds, which is the main reason we don’t expect any major shocks in the government bond market,” he added.

On the other hand, a conflict over EU fiscal rules is likely to weigh on peripheral bond prices and spike their yields, as it could mean tighter budgeting for the most indebted countries.

Last week, France and Italy called for the European Union’s budget rules to leave more leeway for investment that would help the 27-nation bloc become greener and more self-sufficient in a post-pandemic world. Continue reading

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Reporting by Stefano Rebaudo Editing by Peter Graff

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