Borrowing rates

Borrowing rates in bond markets ease

PARIS: Borrowing rates in the euro zone and US bond markets eased yesterday morning after sharp increases in response to clear signs that the US Federal Reserve will begin to reduce its special policy of easy money .

The drop in borrowing costs came after several sessions of sharp increases in yields on US and European bonds, but also bonds issued by many emerging countries.

Investors had been selling U.S. and European bonds in droves, fearing they would soon run out of funds as the U.S. Federal Reserve began to scale back its cash injections into the financial market to support the U.S. economy.

But yesterday the rate or yield indicated by trading Spanish 10-year bonds fell to 4.980% from 5.116% on Monday night.

The yield on Italian 10-year debt fell to 4.724% from 4.832%.

The yield on the euro zone’s benchmark bond, the 10-year German Bund, slipped to 1.765% from 1.811%, and the French 10-year yield fell to 2.361% from 2.453%.

The 10-year US treasury bill rate had risen to its highest level since August 2011 on Monday, being quoted at 2.537%, but yesterday it fell to 2.486%.

These prices and yields refer to the trading on the secondary market of the bonds already issued. They involve what a government would have to pay to borrow if it issued new debt.

The Bank for International Settlements in Basel, the so-called central bank of central bankers, warned in a report over the weekend that central banks should start scaling back their special easy money policies, saying companies had had a respite to strengthen their positions and that only governments could design the necessary structural economic reforms.

Fed Chairman Ben Bernanke warned last week that the US central bank could slow down its program of asset purchases from financial companies by the end of the year as the US economy begins to recover. .

At the Crédit Agricole CIB bank in Paris, economists note that some members of the Fed’s monetary policy committee “recall that monetary policy will remain accommodative” via low interest rates, which has helped calm the bond market.

The economists of the broker Aurel BGC comment: “The objective is to calm the markets and above all to avoid a too rapid rise in long-term interest rates.

This was a reference to the fact that long-term interest rates are set by the market and that 10-year bond yields are a key part of this process.

Bond yields move in the opposite direction to prices.

However, economists have warned that the correction in prices and yields in the bond market is not over and that the foreseeable end of easy money policies, known as quantitative easing, by central banks implies that there would be a ‘bond market burst’. bubble”, and therefore yields would increase significantly.