July 15, 2020 / 7:59 AM / 24 days ago

Euro zone bond yields hold ground in ECB, EU summit countdown

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Yoruk Bahceli

AMSTERDAM, July 15 (Reuters) - Euro zone bond yields held steady in early Wednesday trade, with a light data calendar keeping focus on Thursday’s European Central Bank meeting and Friday’s European Union summit.

Risk appetite grew after U.S. researchers reported on Tuesday that an experimental vaccine for COVID-19 was safe and provoked immune responses. The optimism was undercut by escalating U.S.-China tensions.

Euro zone bond investors are expected to remain cautious before Thursday’s ECB meeting and the EU summit beginning on Friday.

A policy change is not expected from the ECB, but messaging around whether the bank’s emergency bond purchase “envelope” could be used in full will be closely watched. At the summit, investors will watch for signs that a 750 billion-euro recovery fund that has boosted southern European debt could be approved soon.

Time is pressing on EU member states to reach a deal, German Chancellor Angela Merkel said on Tuesday, adding Germany would push for a compromise at the summit. Hawkish northern European states like the Netherlands are opposed to the grants that would make up most of the fund.

“Bunds remain on a rollercoaster as risk sentiment seems torn between US new infections and vaccine hopes ahead of today’s supply, tomorrow’s ECB meeting and Friday’s EU summit,” Commerzbank strategist Rainer Guntermann told clients.

Germany’s 10-year yield was unchanged on Wednesday at -0.45% after falling 3 basis points on Tuesday. Italy’s 10-year bond yield was unchanged at 1.27%.

“Today’s data calendar looks unlikely to give the market a new direction and the summer trading pattern with potentially choppy price action and weaker cross-market correlations still lingering,” Commerzbank’s Guntermann said.

Trading volumes have been low over the past two weeks . Analysts noted that the summer slowdown has started earlier than usual this year.

In the primary market, Germany is scheduled to raise 5 billion euros from the first re-opening of its bond due August 2030, which it originally issued in June. This bond will be joined by a “green” twin in September, when Germany will issue its first green bond.

Reporting by Yoruk Bahceli

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