Eurozone bond yields rise as investors digest issuance

LONDON: Eurozone bond yields rose on Tuesday as markets digested over 20 billion euros of debt issuance from the bloc’s borrowers against a volatile market backdrop and awaited a critical US inflation report.

Germany raised 4.291 billion euros from the re-opening of a two-year bond, while Italy raised to 7.5 billion euros from the re-opening of three, seven and 30-year bonds.

The European Union was set to raise 12 billion euros from a syndicated sale of new five and 30-year bonds to back its COVID-19 recovery fund, seeing over 100 billion euros of demand, according to a lead manager memo seen by Reuters.

Germany’s 10-year yield rose as much as 4 basis points (bps) on the day and was up around one bp to 1.65 per cent by 1050 GMT, holding below a peak of 1.79 per cent touched last week. Bond yields move inversely with prices.

Two-year yields rose as much as 6 bps to 1.35 per cent, having risen to an 11-year high of 1.43 per cent following the European Central Bank’s 75 bp rate hike last week.

“There is a lot (of supply) to absorb and investors are understandably nervous about buying more bonds ater a hawkish ECB meeting and more generally due elevated rates volatility,” said Antoine Bouvet, senior rates strategist at ING in London.

Investors in the bloc’s debt have a lot of news to navigate this week, including reports that ECB policymakers will start a debate about unwinding the bank’s 4 trillion-euro balance sheet and details of an emergency energy package the EU is readying to pull down soaring energy bills that have driven inflation to record highs.

More issuance is in the works, with Belgium hiring banks to sell a new green bond, likely to be launched on Wednesday. Spanish inflation for August was revised higher, to 10.5 per cent year-on-year from a first estimate of 10.3 per cent, adding upward pressure to bond yields.

Italian bonds outperformed and the 10year yield was down 5 bps at 3.91 per cent, narrowing the closely watched premium over Germany to 224 bps, the lowest since last week’s ECB meeting.