Latest news with #bond yields
Zawya
5 hours ago
- Business
- Zawya
Euro zone bond yields rise on trade deal expectations, fading ECB rate cut bets
Euro zone bond yields rose Thursday as risk sentiment improved on expectations the European Union will strike a trade deal with the United States and the market awaited the European Central Bank's policy announcement later in the day. Two EU diplomats said late on Wednesday that the 27-member bloc was heading towards an agreement that would result in broad 15% tariffs on its exports to the U.S., avoiding a harsher levy of 30% scheduled to be implemented from August 1. The U.S. later called the talk of a trade deal with Europe "speculation", but markets still believed a deal was on the horizon before next week's deadline. "Bunds dropped like a hot potato ... with risk sentiment turning for the better on 15% tariff headlines for EU goods," Commerzbank rates strategist Hauke Siemssen said in a note. Germany's 10-year yield, the benchmark for the euro zone, rose as high as 2.684%. It was last up 7 basis points (bps) to 2.667%, on track for its biggest one-day rise since May 12. Bond yields move inversely with prices. Germany's two-year yield, more sensitive to changes in interest rate expectations, rose 6 bps to 1.854%. Later on Thursday, the ECB is expected to hold the deposit rate steady following 200 bps of rate cuts since the middle of last year, as the central bank waits for the fog over trade relations with the U.S. to clear. But markets trimmed expectations for future reductions in borrowing costs after the reports of a possible EU-U.S. trade agreement. "At the margin, it (a possible trade deal) reduces the odds for rate cuts," said Jussi Hiljanen, chief rates strategist at SEB, who expects the ECB to remain on hold today. "Today should be a non-event. I would be surprised to see (ECB President Christine) Lagarde say something that makes the market price in more than one rate cut." Futures now imply about a 40% chance that ECB will lower borrowing costs in September from a near 50% chance on Wednesday. Markets are pricing just 22 bps of easing by the year's end, implying an 88% chance of a quarter-point move. Business activity in the euro zone accelerated faster than expected this month, supported by a solid improvement in the services industry and signs of a recovery in the manufacturing sector, a survey showed on Thursday. HCOB's preliminary composite euro zone Purchasing Managers' Index, compiled by S&P Global, rose to an 11-month high of 51.0, above expectations for 50.8 in a Reuters poll of economists. Italy's 10-year bond yield, the benchmark for the euro zone periphery, rose 6.5 bps to 3.521%. (Reporting by Samuel Indyk; Editing by Barbara Lewis and Joe Bavier)
Yahoo
3 days ago
- Business
- Yahoo
Analysis-Growth and foreign fervour for yield give Japan fiscal wiggle room
By Rae Wee and Vidya Ranganathan SINGAPORE (Reuters) -A weekend election in Japan has made real the prospect of bigger government spending and deficits in the world's most indebted developed nation, although for now foreign investors and a growing economy could keep its bond yields from spiking sharply. Japan's upper house election on Sunday dealt a big blow to the ruling coalition and Prime Minister Shigeru Ishiba ahead of a looming tariff deadline with the United States. Investors are bracing for scenarios ranging from Ishiba continuing to run a minority government, a deal with a smaller opposition party or even his ouster, but one thing they are certain of is that Japan is heading for tax cuts and a wider fiscal deficit. Under normal circumstances, that should lead to a selloff in bonds and higher yields as investors demand to be compensated for risk to lend to a country with debt exceeding $8 trillion, or nearly 2-1/2 times the size of its economy. But while Japanese long-term bond yields have been rising, they are nowhere near levels reflecting such government profligacy. Thirty-year bonds fetch just 3%. A weak yen and a legacy of low interest rates, Japan's return to inflation, huge domestic savings and the Bank of Japan's policies have worked to anchor Japanese government bond (JGB) yields. Analysts expect some of that support for bonds will continue. "With some of the proposals at the margin, with the changed political dynamics, potentially you could see more clamour for fiscal support including consumption taxes," said Michael Wan, a senior currency analyst at MUFG. But Wan and other analysts point to Japan's economic growth and emergence from deflation in the past three years as reasons the debt burden is manageable and likely to decline in the coming years. Japan's fiscal situation isn't as dire as many think," Marcel Thieliant, Capital Economics' head of Asia Pacific, said in a note. While Japan's gross debt to GDP is the highest of any major economy, net debt is much lower, he said. "Relative to other countries, Japan is a net creditor. So you do have, in theory, a lot of funds on the sidelines, from domestic institutions who have invested abroad, which could cap any sharp and dislocation in yield spikes over the medium term," MUFG's Wan said. FOREIGN BID Its role as one of the world's biggest creditors sets Japan apart from other G7 nations with debt and rising bond yields, such as Britain and the United States. Together with pension giant GPIF and life insurance firms, the country has about $3.6 trillion dollars invested overseas, of which half is in U.S. assets. While Japan can tap into its huge pool of domestic savings if needed, for now its low yields and weakening currency are luring foreign investors, who can switch dollars or euros for yen and earn a spread on the currency swap. Swapping dollars to yen to invest in one-year JGBs, for instance, yields about 30 basis points more than the 3.9% yield on one-year U.S. Treasuries. "Global managers or index guys actually look at the developed market as a relative value play, like whichever bounces up the most," said Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments. "Of course it makes more sense for me to rotate out and do my asset swapping to get the best swap-adjusted return." The steepness of the Japanese government curve has helped entice bond investors. Foreigners have poured more than 15 trillion yen ($101.17 billion) into Japanese bonds so far this year. Thirty-year yields are up 80 basis points (bps) at all-time highs this year and the yield curve is at its steepest in years, with the spread between 10-year and 30-year bonds above 150 bps. Thieliant still expects the 10-year JGB yield will rise to 2% by the end of 2026 from current levels around 1.5%, but that he said is based on a hawkish monetary policy view. ($1 = 148.2600 yen) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
3 days ago
- Business
- Yahoo
Analysis-Growth and foreign fervour for yield give Japan fiscal wiggle room
By Rae Wee and Vidya Ranganathan SINGAPORE (Reuters) -A weekend election in Japan has made real the prospect of bigger government spending and deficits in the world's most indebted developed nation, although for now foreign investors and a growing economy could keep its bond yields from spiking sharply. Japan's upper house election on Sunday dealt a big blow to the ruling coalition and Prime Minister Shigeru Ishiba ahead of a looming tariff deadline with the United States. Investors are bracing for scenarios ranging from Ishiba continuing to run a minority government, a deal with a smaller opposition party or even his ouster, but one thing they are certain of is that Japan is heading for tax cuts and a wider fiscal deficit. Under normal circumstances, that should lead to a selloff in bonds and higher yields as investors demand to be compensated for risk to lend to a country with debt exceeding $8 trillion, or nearly 2-1/2 times the size of its economy. But while Japanese long-term bond yields have been rising, they are nowhere near levels reflecting such government profligacy. Thirty-year bonds fetch just 3%. A weak yen and a legacy of low interest rates, Japan's return to inflation, huge domestic savings and the Bank of Japan's policies have worked to anchor Japanese government bond (JGB) yields. Analysts expect some of that support for bonds will continue. "With some of the proposals at the margin, with the changed political dynamics, potentially you could see more clamour for fiscal support including consumption taxes," said Michael Wan, a senior currency analyst at MUFG. But Wan and other analysts point to Japan's economic growth and emergence from deflation in the past three years as reasons the debt burden is manageable and likely to decline in the coming years. Japan's fiscal situation isn't as dire as many think," Marcel Thieliant, Capital Economics' head of Asia Pacific, said in a note. While Japan's gross debt to GDP is the highest of any major economy, net debt is much lower, he said. "Relative to other countries, Japan is a net creditor. So you do have, in theory, a lot of funds on the sidelines, from domestic institutions who have invested abroad, which could cap any sharp and dislocation in yield spikes over the medium term," MUFG's Wan said. FOREIGN BID Its role as one of the world's biggest creditors sets Japan apart from other G7 nations with debt and rising bond yields, such as Britain and the United States. Together with pension giant GPIF and life insurance firms, the country has about $3.6 trillion dollars invested overseas, of which half is in U.S. assets. While Japan can tap into its huge pool of domestic savings if needed, for now its low yields and weakening currency are luring foreign investors, who can switch dollars or euros for yen and earn a spread on the currency swap. Swapping dollars to yen to invest in one-year JGBs, for instance, yields about 30 basis points more than the 3.9% yield on one-year U.S. Treasuries. "Global managers or index guys actually look at the developed market as a relative value play, like whichever bounces up the most," said Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments. "Of course it makes more sense for me to rotate out and do my asset swapping to get the best swap-adjusted return." The steepness of the Japanese government curve has helped entice bond investors. Foreigners have poured more than 15 trillion yen ($101.17 billion) into Japanese bonds so far this year. Thirty-year yields are up 80 basis points (bps) at all-time highs this year and the yield curve is at its steepest in years, with the spread between 10-year and 30-year bonds above 150 bps. Thieliant still expects the 10-year JGB yield will rise to 2% by the end of 2026 from current levels around 1.5%, but that he said is based on a hawkish monetary policy view. ($1 = 148.2600 yen)
Reuters
17-07-2025
- Business
- Reuters
Japan must be mindful of credit rating downgrade risk, bank lobby head says
TOKYO, July 17 (Reuters) - Japan must be mindful of the risk of a credit rating downgrade if an expansion in public debt runs out of control, the head of the country's banking lobby said, as lawmakers ramp up calls for big spending ahead of an upper house election on Sunday. Japanese government bond (JGB) yields rose to multi-decade highs this week on market expectations that a strong performance by opposition parties calling for big spending and tax cuts could lead to an increase in Japan's already huge debt-pile. Junichi Hanzawa, chairman of the Japanese Bankers Association, said the recent rise in bond yields likely reflected investors' anxiety over the market outlook. "If debt expansion runs out of control, it could become difficult for the government to smoothly sell bonds in the market" as the balance of Japan's public debt is already extremely high, Hanzawa told a news conference on Thursday. "If this happens, we must be mindful of the risk of a JGB credit rating downgrade," he said. Recent media polls showed Prime Minister Shigeru Ishiba's ruling coalition could lose its majority in the upper house election. Such an outcome could force Ishiba to abandon his hawkish fiscal tilt, boost spending and heed opposition calls to cut Japan's sales tax rate, analysts say. Moody's Ratings has said an increase in tax cut pressure could be negative for Japan's rating depending on the size and duration of the cut. It rates Japan A1, the fifth-highest level. A credit rating downgrade could trigger a triple selling of JGBs, yen and Japanese stocks - and boost the cost of dollar funding for Japanese banks.
Bloomberg
14-07-2025
- Business
- Bloomberg
Germany's 30-Year Borrowing Costs Climb to Highest Since 2023
Germany's 30-year bond yields climbed to the highest since 2023 as concerns over tariffs and extra government spending led investors to sell long-end debt. The yield on the securities rose three basis points to 3.25%, adding to a surge in the past month. A move above 3.263% would take the rate to the highest since 2011.
