U.S. and German government bonds came under selling pressure on Thursday, one day after the Federal Reserve announced it will start trimming its monthly asset purchases by $10 billion to $75 billion. The move was much anticipated but was also historically significant – it is the first step towards unwinding the abundant monetary stimulus that helped keep the financial system afloat during years of crises.
But the bond sell-off was limited, only taking yields to the top-end of ranges held in recent months. On Friday, U.S. yields were mixed and German borrowing costs little changed.
LONDON, Dec 19 (Reuters) – German yields held near
seven-week highs on Thursday, a day after the Federal Reserve
said it would trim asset purchases but tempered the move with a
promise to keep interest rates low for longer than previously
Fed Chairman Ben Bernanke said the U.S. central bank would
reduce its monthly asset purchases by $10 billion to $75 billion
and was likely to continue to cut them back steadily, suggesting
its huge dose of quantitative easing could end by late 2014.
LONDON, Dec 19 (Reuters) – U.S. Treasuries held within
recent ranges on Thursday after the Federal Reserve tempered
news it would start scaling back its bond-buying program by
signalling interest rates would stay lower for longer.
The Federal Reserve trimmed its monthly asset purchases by
$10 billion to $75 billion but also said it was likely to keep
rates near zero well past the time that the jobless rate falls
below 6.5 percent, especially if inflation expectations remain
LONDON, Dec 16 (Reuters) – German Bunds pared an early rise
on Monday after a survey showed euro zone private sector
activity surpassed expectations in December, against a backdrop
of investor caution ahead of the Federal Reserve’s rate meeting
Bunds rose in early trade after separate surveys showed
private sector activity in France slowed unexpectedly in
December, while growth in activity in China’s vast factory
sector slowed to a three-month low.
LONDON, Dec 13 (Reuters) – Two-year German yields hit a
three-month high on Friday as banks repaid the highest weekly
amount since February to the European Central Bank, getting into
shape for an upcoming balance sheet review.
Banks will repay a massive 22.65 billion euros of crisis
loans early to the ECB next week, as the pace with which banks
pay back the three-year loans they got from the central bank at
the height of the crisis picks up.
LONDON, Dec 12 (Reuters) – Italian and Spanish bonds fell on
Thursday after a media report that the ECB could make euro zone
banks hold capital against sovereign bonds to stop weak lenders
using its cash to buy debt from crisis-hit countries.
The Financial Times quoted European Central Bank executive
board member Peter Praet as saying the bank could toughen up
requirements on sovereign bonds – which have traditionally been
treated as risk-free.
LONDON, Dec 11 (Reuters) – Two-year German yields crept
higher on Wednesday, tracking a recent rise in short-term
lending rates on the back of falling liquidity in money markets
and as investors absorbed supply.
Overnight lending rates have been creeping higher as banks
pay back long-term funding lent by the European Central bank at
the height of the euro zone debt crisis.
Corporate bonds normally yield more than sovereign debt since companies are seen as more likely than states to go bust. But during the euro zone debt crisis, when various governments had to be bailed out, that relationship broke down in Spain and Italy.
Madrid and Rome are paying more to borrow in the market than similarly-rated companies generally. Ten-year Spanish and Italian sovereign bonds offer a comfortable premium of more than 60 basis points over a basket of BBB-rated corporate debt, even though that gap has more than halved from this year’s highs.
LONDON, Dec 10 (Reuters) – Italian and Spanish debt premia
hit their lowest since mid-2011 on Tuesday as Rome bought back 4
billion euros of bonds in another move highlighting the improved
funding position for the euro zone’s weaker states.
The two countries, which were at the forefront of the euro
zone debt crisis two years ago, have already hit their 2013
funding targets even though each still has one bond auction
scheduled before the end of the year.
LONDON, Dec 10 (Reuters) – Fear of the euro zone breaking up
has all but vanished but the extra return Spanish and Italian
government bonds offer over corporate paper suggests investors
remain nervous that some states may not repay all their debts.
Corporate bonds normally yield more than sovereign debt
since companies are seen as more likely than states to go bust.
However, after EU governments like Portugal and Greece had to be
bailed out, that relationship reversed for countries on the euro
zone periphery, including major economies Italy and Spain.