German Bond Yields Touch Two-Month High As Issuance Picks Up.

German Bond Yields Touch Two-Month High As Issuance Picks Up.

Benchmark German 10-year yields rose to a two-month high on Tuesday as debt issuance in the bloc put pressure on bond prices.


The European Union was due to raise 9 billion euros from the issuance of a new seven-year bond to back its coronavirus recovery fund. Its first market outing since the summer break, the deal has received over 85 billion euros of investor demand, according to a lead manager memo seen by Reuters.


The EU was placing its bond in syndication, where an issuer hires banks to place the bonds directly with end investors.


More supply was in the works auctioning, the more common way governments raise debt. Germany will target 5 billion euros from the re-opening of a two-year bond, Italy will rise to 5.75 billion euros from the re-opening of bonds due 2024, 2028 and 2051, and the Netherlands will rise to 2 billion euros from the re-opening of a bond due 2052.


Germany’s 10-year yield, the benchmark for the bloc, briefly rose to a two-month high at -0.302% and was last up nearly 2 basis points at -0.31% by 0848 GMT.


Althea Spinozzi, the fixed income strategist at Saxo Bank, said bond yields were rising on Tuesday driven by heavy supply.


“Despite the ECB (killing) the bond bear market last week, I expect the yield curve to bear-steepen mildly as the market tries to digest high volumes of bond supply,” Spinozzi said.


Germany’s yield curve, as measured by the gap between two and 10-year yields, widened marginally to as high as 39.4 bps on Tuesday, the widest since early July.


The European Central Bank slightly slowed the pace of its pandemic emergency bond purchases last Thursday, calming fears around a hawkish response from the ECB that had worried markets before the meeting.


But a market rally that followed was wiped out as eurozone bond yields rose alongside U.S. Treasury yields after the meeting.


The other main focus for bond investors on Tuesday is U.S. inflation data. Due at 1230 GMT, it will be watched closely before next week’s U.S. Federal Reserve meeting. It is expected to show consumer prices rose 0.4% in August, down from 0.5% in July, according to a Reuters poll.


The year-on-year rise is also expected to fall to 5.3% from 5.4% in July, suggesting further evidence that inflation, which has been at the top of investors’ agenda this year, maybe starting to cool.


Analysts said a higher-than-expected reading may push U.S. Treasury yields moderately higher, a move often followed by eurozone bond yields.

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