Euro zone government bonds steady
LONDON — Euro zone government bonds held steady on Tuesday as traders watched to see whether peace talks between the US and Iran would take place, and awaited the Senate confirmation hearing for Kevin Warsh, US President Donald J. Trump’s pick to lead the US Federal Reserve.
Bond markets in March and early April swung sharply in response to headlines related to the war in the Middle East, as investors feared sustained high energy prices would force central banks to tighten policy to prevent a broader surge in prices.
But there were few new developments to react to on Tuesday. The US expressed confidence that peace talks with Iran would go ahead in Pakistan and a senior Iranian official said Tehran was considering joining, but significant hurdles and uncertainty remained as the end of a ceasefire approached.
Germany’s 10-year yield, the benchmark for the euro zone, dropped a bit less than 1 basis point (bp) to 2.97%, while its interest rate-sensitive two-year yield was flat at 2.45%.
Markets continue to price a very small chance of a European Central Bank rate hike later this month, though they see a 25-bp rate increase as more likely than not by June, and are close to fully pricing two such moves by yearend.
Other euro zone bonds were largely moving in line with the benchmark. Italy’s 10-year yield was steady at 3.71%.
Aside from war headlines, investors were expected to watch Mr. Warsh before US lawmakers.
Mr. Trump has openly vented his frustration at Fed Chairman Jerome H. Powell for not lowering rates more.
Analysts at ING said Mr. Warsh would have to “tread a fine line between making the case for lower borrowing costs, which helped him get the nomination from the President, and preserving the Fed’s inflation-fighting credentials.” — Reuters
