German bond yields hover near three-month lows as Fed decision looms

LONDON: Germany’s 10-year government bond yield clung to recent lows on Wednesday ahead of a US Federal Reserve meeting that is widely expected to end with a decision to raise rates just a day ahead before a meeting of the European Central Bank (ECB).

Analysts said until this week’s major central bank meetings, which includes a Bank of England meeting on Thursday, were over trading in bond markets was likely to remain subdued.

“Everyone is standing on the sidelines,” DZ Bank rate strategist Rene Albrecht said. “While there is market consensus on the Fed, we are also supposed to get some details about how the ECB plans to reduce purchases in 2018.”

The ECB in October extended its asset purchases until September 2018 albeit at a reduced pace and left the door open for keeping the taps flowing beyond that date.

The central bank meeting today could provide more details on how that tapering will play out next year, while analysts said they would also be paying attention to the ECB’s inflation forecasts for the year ahead.

Before that, however, the spotlight was on the US Federal Reserve, which is widely tipped to deliver its third rate rise of the year.

More significantly, the Fed may give its strongest hint yet on how the Trump administration’s tax overhaul could affect the US economy.

Investors are paying close attention to how the US central bank aims to balance a stimulus-fuelled economic boost with the ongoing weak inflation and tepid wage growth that has curbed some policymakers’ appetite for higher rates.

Most euro zone bond yields were little changed in early trade yesterday.

Germany’s benchmark 10-year bond yield was just 0.5 basis points lower on the day at 0.31% and within sight of a three-month low hit last week.

Trading in cash bond markets showed little signs of disruption after a delay in trade in bond futures trade on the Eurex exchange.

German, French, British and Italian government bond futures were little changed after the delayed opening.