Brexit roller-coaster pushes safe-haven eurozone bond yields back towards lows
LONDON: Safe-haven eurozone bond yields headed back towards recent lows after Britain’s attorney general said the legal risks of a Brexit deal with the EU had not changed, lowering the chances of the agreement getting through the parliament.
Geoffrey Cox’s legal advice is crucial to winning over eurosceptic lawmakers in Prime Minister Theresa May’s Conservative Party, and she had hoped revisions to a Brexit deal over the Irish backstop, or protocol, secured on Monday would offer enough assurances to get her deal through parliament.
Those revisions secured by May had sparked a rally in sterling and a selloff in major bond markets earlier in the day.
However, as sterling tumbled 1 per cent against major currencies on the Cox comments, investors fled back to the safety of top-rated government bond markets.
“If May goes ahead with the vote tonight given the Cox opinion, she will face a sizeable defeat, perhaps over 100 votes,” said Chris Scicluna, head of economic research at Daiwa Capital Markets.
Germany’s benchmark 10year government bond yield was trading steady at 0.07 per cent, down from 0.107 per cent earlier in the day and not far off more than two-year lows hit last week at 0.048 per cent.
Across the euro area, higherrated bond markets gave up earlier rises to stand little changed on the day.
Britain’s 10-year gilt yield was also flat at 1.17 per cent, having risen as much as 7 bps earlier in the session.
“Gilt yields could go south from here,” said Scicluna.
Brexit, together with world trade tensions, has exacerbated concern about the outlook for a world economy that has slowed in recent months.
Removal of some of the big risks would brighten the outlook significantly, analysts say.
“What markets need is to see some growth and inflation to start repricing bonds and that will be a slow process, so for now we are stuck in ranges,” said Pooja Kumra, European rates strategist at TD Securities in London. — Reuters