Investors shed bunds as ECB boosts eurozone

LONDON: Safe-haven German government bonds sold off for a second day on Friday, with yields reaching their highest levels in months, after the European Central Bank’s support for the eurozone helped boost sentiment towards the wider region.Southern European borrowing costs fell further and the gap between long-dated Italian and German bond yields shrunk to its narrowest since the first coronavirus-related market rout in late March. The ECB approved a bigger-thanexpected expansion of its stimulus package on Thursday to prop up an economy plunged by the coronavirus pandemic into its worst recession since World War Two.

“If you think about what the ECB has done, it is dramatically supporting the euro through reducing tail risk. Peripheral spreads will keep tightening, especially at the long end,” said Peter Chatwell, Mizuho’s head of rates. The gap between Italian and German 30-year bond yields was at its narrowest since March 27, at 167 basis points. German 10year Bund yields rose 6 bps to -0.257 percent, the highest since March 25, buoyed also by a drop in the U.S. jobless rate to 13.3 percent last month from 14.7 percent in April, in spite of economists predicting it would rise.

Employment data from the United States also showed over 2.5 million jobs being added, an improvement from a dire figure the month before and adding to the positive sentiment. Data “suggests the American economy can bounce back very vigorously and we all need to massively revise up our economic projections,” said James Knightley, chief international economist at ING.—Reuters