German bonds a safe haven in Chinese slide
Top-rated German bond yields fell to the lowest level seen in nearly three months yesterday, as fears of a China-led global economic slowdown saw investors barrel out of riskier assets like stocks. Oil slumped to new six-and-a-half-year lows as markets fretted about shrinking demand from the world’s second-largest economy, while the prospect for a weaker Chinese currency threatens to export disinflation beyond its borders. Markets are already pricing in that the eurozone could return to deflation in a year’s time. “What happens in China does have a big effect on the rest of the world,” said Orlando Green, a strategist at Credit Agricole. “It is very difficult to trade this market and we could exercise caution.” The IMF expects the Chinese economy to grow at 6.8 percent this year, below the 7.4 percent growth achieved in 2014. But fearing the worst, investors took cover in Europe’s benchmark German bonds, sending 10-year yields down 5 basis points to touch 0.53 percent in the early trades, the lowest since June 1. Yields on lower-rated bonds from the bloc’s southern periphery suffered. Greece, Portugal, Italy and Spain all saw their 10-year yields rise 46 basis points on the day to 9.89 percent, 2.70 percent, 1.91 percent and 2.06 percent, respectively. While the dismal outlook for consumer price growth looked set to cushion the blow as it brings with it calls for the European Central Bank to inject more stimulus into the bloc, elections in Greece next month have added more uncertainty into the mix.
Salaries in Greece have dropped by a cumulative 28.16 percent since 2010, according to the wage index data for the first quarter of this year published yesterday by the Hellenic Statistical Authority (ELSTAT). The index showed that seasonally adjusted wages fell by 1.8 percent in Q1 compared to Q4 of last year.