Owen Callan Comments: EU bond yields fall as investors look beyond chunky issuance

 January 14, 2016, The Gulf Today

LONDON: Euro zone bond yields fell on Wednesday as investors started to look beyond this week’s hefty issuance calendar and re-focus on prospects for further monetary stimulus in the region. 

Germany and Italy sold bonds at auctions, while Belgium was set to price a new 5 billion euro, 10-year bond before Spain rounds off the week with its second debt sale on Thursday. 

Commerzbank estimates the sales for this week will bring weekly volumes to around 35 billion euros – the biggest haul in six months. 

Still, with a hefty chunk of the week’s supply out of the way, the upward pressure on bond yields appeared to be lifting. 

Yields were 2-4 basis points lower in most of the region, with the 10-year German Bund yield down 2 basis points at 0.51 per cent. 

“The market in previous days has been wanting to rally but has been held up by supply,” said Mizuho strategist Peter Chatwell.”Now we’ve made some progress through what was a heavy slate of supply, perhaps we have some room to rally.” 

With inflation in the bloc near zero, miles away from the ECB’s target, there remains the prospect of further monetary stimulus that could push yields lower. 

The ECB’s chief economist on Wednesday wrote that the impact of the falling price of oil on inflation is not temporary, but that the Bank would stand by its goal of reaching inflation in the medium term of close to 2 per cent. 

Mizuho’s Chatwell said the idea that further monetary stimulus was needed from the ECB to push up inflation was gaining ground. 

Spanish bond yields meanwhile fell 4.5 basis points to 1.79 per cent, outperforming most peers, with some analysts attributing the move to news that Spain’s acting Prime Minister Mariano Rajoy aims to seek backing in parliament to form a government by the end of January. 

“It now seems like some sort of agreement can be reached to get a stable and, crucially for investors, non-radical government in power,” said Owen Callan, senior analyst at Cantor Fitzgerald. 

Spain’s lower house of parliament reconvened on Wednesday for the first time since an inconclusive election last month.