Borrowing costs

EU borrowing costs rise despite signs of a bond shortage

Eurozone bond yields rose yesterday, following movements in US Treasuries after falling earlier in the session, with a focus on a shortage of debt supply that kept borrowing costs down. block.

S Treasury yields stabilized as investors weighed in concerns about the rising rate of Covid-19 infections from the Treasury’s new offer this week and the likely effects of the Federal Reserve cutting its bond purchases .

“I think there is an opportunity for US yields to rise to levels more consistent with the macroeconomic backdrop at around 1.7%,” said Massimiliano Maxia, senior fixed income specialist at Allianz Global Investors. Analysts see a scarcity of bonds in the eurozone, as issuance declines while demand for safe assets to use as collateral increases. This was seen as keeping bond yields contained as eurozone swap rates rose relative to government bonds.

This contributed to lower bond yields on Friday even as money markets took in two full rate hikes from the European Central Bank by the end of 2022.

The bloc’s government bonds, whose yields move in the opposite direction of their prices, have also likely been backed by member states that have decided to implement foreclosure measures to curb the spread of the coronavirus, with Germany being the latest country to plan tighter restrictions.

Jens Peter Sorensen, chief analyst at Danske Bank, said low issuance towards the end of the year kept the bloc’s bond yields lower as they were outstripped by European Central Bank bond purchases.

Mr Sorensen said that the benchmark issuer, Germany, was “particularly unbalanced” as it would issue 16 billion euros of bonds against 15.5 billion euros of maturing debt flows and 25 to 30 billion euros in purchases by the ECB, keeping a new offer for investors negative.