Bond yields set for biggest two days falling streak in months

Bond yields set for biggest two days falling streak in months

Oct 14 Reuters - Shared bond yields were set for their biggest two days falling streak in months as bond markets continued to reverse a recent spike in borrowing costs.

Government bond yields across major developed markets, driven higher over the last month by worries about inflation and hawkish comments from central banks, have fallen sharply since Tuesday as markets started to consolidate. Bond yields move inversely with prices.

On Thursday in the Euro area, German's 10-year yield, the benchmark for the bloc, was down 4 basis points to - 0.088% by 11:00 GMT, far below Wednesday's near 5 months high of 10.088%.

Over the last two sessions, down 7 bps and set for the biggest drop since early July.

The 30 - year yield led Thursday's rally and was down 11 bps in the last two sessions, and was set for its biggest two-day fall since early March.

The yield curve continued to flatten after a sharp move on Wednesday and narrowed until late August to the flattest as measured by the gap between 10 and 30 year yields at 78 bps.

And Thursday's lowest yields continued to be driven by fallen nominal yields on inflation-linked bonds which outpaced the falling real bond yields. Germany's real yield - 10 year realized was down 5 basis points to - 1.87%, the lowest in more than a week.

Peter McCallum, rate strategist at Mizuho, noted that moves in the euro area yields were being driven by moves in the UK government bond market in particular, where investors are betting on a rate hike from the Bank of England by the end of the year, while long-dated yields have fallen sharply.

The moves suggest the market is thinking that would be a policy error, so that would cut growth too much and might not necessarily have the desired impact on inflation. So it would really be a hit to demand that isn't warranted, McCallum said.

The market has focused on monetary policy with investors watch the central bank speakers on Thursday.

In the euro area, European Central Bank President Christine Lagarde said Europe's inflation swing is still shown as temporary and there are no signs yet that the recent surge is being embedded in wages.

In addition, given the influence of UK rates on the Euro area, the Bank of England is also in focus. Politician Silvana Tenreyro said it should not raise rates to deal with inflation caused by higher energy prices and semiconductors if it thinks these effects will be short lived.

I.S. Federal Reserve policymakers will also be in focus later in the session after the bank's September meeting minutes showed how it could start reducing its bond purchases from mid November.

In the primary market, Ireland raised 1.5 billion euro from bonds due 2031, 2045 and 2050.