Euro­pean bonds drift up ahead of key ECB meet­ing

Irish Independent - Business Week - - BUSINESSWEEK -

EU­RO­ZONE bond yields drifted higher yes­ter­day, re­vers­ing early falls, as the im­pact of strong gains in the US bond mar­ket faded and fo­cus turned to higher oil prices and the need for cau­tion a day be­fore a keenly an­tic­i­pated ECB meet­ing.

US Trea­sury yields fell to al­most 10-month lows on Tues­day as wor­ries about fur­ther nu­clear tests by North Korea and the im­pact of pow­er­ful storm Irma sparked de­mand for safe­haven as­sets. When a bond yield falls, its price rises.

That pro­vided a pos­i­tive back­drop for Euro­pean bond mar­kets, with Ger­man 10-year yields hit­ting their low­est lev­els in just over a week in early trade.

At home, shares in Glan­bia, closed up 1.26 pc at €16.10 af­ter In­vestec up­graded its in­vest­ment rat­ing on the com­pany but low­ered its price tar­get on the stock, say­ing the shares were over­sold in re­cent months due to in­vestors’s twin con­cerns over the weak­ness in the US dol­lar and the per­for­mance of its global per­for­mance nu­tri­tion (GPN) unit, which ac­counts for more than 40pc of the group earn­ings. The over­all Iseq in­dex was down a third of one per­cent at 6,666.26.

Else­where, brent crude oil prices rose al­most 1pc to their high­est lev­els since May as strong global re­fin­ing mar­gins and the re­open­ing of US Gulf Coast re­finer­ies pro­vided a more bullish out­look af­ter sharp drops due to Storm Har­vey.

“We’ve got the oil price higher, which is some­thing that is of­ten con­sis­tent with a move higher in bond yields,” said Chris Sci­cluna, head of eco­nomic re­search at Daiwa Cap­i­tal Mar­kets.

Oil prices rose as US re­finer­ies re- opened af­ter Hur­ri­cane Har­vey, even as Hur­ri­cane Irma headed to­wards the Caribbean.

“Af­ter such a sig­nif­i­cant down­ward move in US Trea­sury yields, there’s also a bit of re­trace­ment there.”

Ger­many’s 10-year bond yield was up 1 ba­sis point at 0.35pc, up from one-week lows hit ear­lier at 0.325pc.

Two-year Ger­man bond yields were also marginally higher on the day, hav­ing touched mi­nus 0.79pc, their low­est lev­els since April.

With the Euro­pean Cen­tral Bank (ECB) meet­ing to­day, an­a­lysts said there was a re­luc­tance to push bond yields down too sharply de­spite a num­ber of sup­port­ive fac­tors such as the North Korea ten­sions which have pushed in­vestors into so called safe havens, in­clud­ing gov­ern­ment debt, Swiss francs and gold.

The ECB will be closely watched for any signs that the cen­tral bank has be­come un­com­fort­able with the euro’s re­cent strength, a con­cern that could de­lay it from wind­ing back its mas­sive mone­tary stim­u­lus scheme.

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