By Abhinav Ramnarayan
LONDON (Reuters) – Euro zone government bond yields dipped across the board on Tuesday before the release of data that is expected to show the euro zone economy contracted in the fourth quarter of the year.
Final numbers on the euro zone economic output are due out at 1000 GMT and market expectations, according to a Reuters poll, are the euro zone’s economy shrank 0.6% over the previous quarter and 5% over the same period in 2019. [EM]
Euro zone government bond yields, which have hit some of their highest levels in nearly a year recently, dipped across the board, a sign of caution before the release.
Germany’s 10-year government bond yield dropped two basis points to -0.298%, moving further away from the one-year high of -0.203% in late February.
Other euro zone bond yields were also down 1 to 3 basis points across the board.,
Analysts don’t expect the economic gloom and the fall in yields to last as vaccination programmes progress in Europe and the United States, fuelling an economic recovery from the COVID-19 crisis.
Strong economic performance tends to dampen demand for “safe” government bonds.
“We read price action yesterday, especially the strong rally and rotation in stocks, as a sign of growing confidence in the post-Covid recovery,” analysts at ING said in a note. “In the absence of strong intervention from either the Fed or the ECB, this should bring about higher rates.”
The European Central Bank failed to increase the pace of its emergency purchases last week, missing market expectations and adding to doubts about its commitment to supporting a pandemic-stricken, debt-laden economy.
Later today, the European Union is due to continue its emergency SURE borrowing programming by issuing 15-year Social bonds. Analyst expectations are for a deal size of below 10 billion euros.
(This story corrects to changes to fourth quarter of 2020 (from first quarter 2021 previous) in headline and lede)
(Reporting by Abhinav Ramnarayan, editing by Larry King)