European bond markets made steady gains on Tuesday, with the interest rate on Irish government debt falling further. Irish ten year bond yields, which ended last week at around 0.8 per cent, were quoted on Tuesday at 0.73 - 0.74 per cent, with gains also made in longer dated Irish bonds.
The Irish gains came in tandem with other European markets, with falling oil prices holding down inflationary expectations. German 10-year government bonds yields hit four-week lows on Tuesday with Spanish, Italian and other markets also benefiting. Market sources in Dublin said trading was relatively quiet, with Irish bonds gaining in tandem with other markets.
So far any fears of “ Brexit” have not affected trade in Irish bonds, despite forecasts that the Irish economy could be hit, if Britain voted to leave the EU. Market sources pointed out that UK bookmakers were still strongly favouring a vote to “remain” in the EU despite closer readings in opinion poll. The delay in forming a new government has also not had any obvious impact on the market. Lower bond interest rates will help to cut the cost of new debt raised by the NTMA.
Oil prices up
Oil prices are up about 50 percent from 12-year lows hit in mid-February but they have been weakening in the past week. Brent crude fell 70 cents to $39.57 on Tuesday. This is helping to hold down expectations of future inflation.
Germany is due to release inflation figures for March on Wednesday, while the data for the whole euro zone will be published on Thursday.
German 10-year yields, the benchmark for the region’s borrowing costs, fell 4 basis points to 0.14 percent, the lowest since March 1 and only slightly off this year’s lows of 0.10 percent hit in February.
Most other euro zone bond yields were 3-6 bps lower.
Part of the move was just catching up with bond yields in the United States, where markets were open on Monday.
Awaiting Yellen
Softer-than-forecast data on US consumer spending in February supported the view of sub-par economic growth in the first quarter and the likelihood the Federal Reserve will leave benchmark interest rates alone at least into mid-year.
Fed chief Janet Yellen will speak about the economy and monetary policy on Tuesday following remarks from several Fed officials last week that further rate hikes are likely later this year.
Analysts say ECB easing and subdued near-term supply pressure should keep euro zone yields anchored even if Yellen points to more rate hikes.
“If Fed Chair Yellen sounds a more hawkish tone this evening ...then U.S. Treasuries are likely to come under slight selling pressure. But Bunds and the other euro government bonds will probably be unimpressed by this,” said Alexander Aldinger, senior analyst at Bayerische Landesbank.
( Reuters: additional reporting Irish Times business staff)
