Our latest Investing Matters Podcast episode with QuotedData's Edward Marten has just been released. Listen here.

Less Ads, More Data, More Tools Register for FREE
Stefan Bernstein explains how the EU/Greenland critical raw materials partnership benefits GreenRoc
Stefan Bernstein explains how the EU/Greenland critical raw materials partnership benefits GreenRocView Video
Utilico Insights - Jacqueline Broers assesses why Vietnam could be the darling of Asia for investors
Utilico Insights - Jacqueline Broers assesses why Vietnam could be the darling of Asia for investorsView Video

Latest Share Chat

UPDATE 1-European govt bonds rally as China ups stakes in trade war

Mon, 05th Aug 2019 12:16

* Bond yields tumble as China lets yuan fall

* Dutch bond yield curve now negative

* Ireland 10-year yield briefly falls below 0%

* Some signs of life in Italy's ailing economy(Updates with U.S. data, UST price action)

By Virginia Furness

LONDON, Aug 5 (Reuters) - Dutch 30-year and Irish 10-yeargovernment bond yields turned negative for the first time onMonday as euro zone yields sank further amid an escalation ofthe U.S.-China trade and currency war and concerns about ano-deal Brexit.

China on Monday let its yuan fall beyond 7 per dollar forthe first time in more than a decade, in a sign Beijing might bewilling to tolerate further currency weakness as the tradedispute worsens.

The 1.4% drop in the yuan comes days after U.S. PresidentDonald Trump surprised markets by saying he would impose 10%tariffs on the remaining $300 billion of Chinese imports fromSept. 1, breaking a month-long trade truce.

Bond yields across the bloc extended Friday's declines.

Dutch 30-year government bond yields fell to a record low of-0.053%, taking the whole curve into negative territory for thefirst time.

In Germany, where the entire yield curve was below zero onFriday for the first time, yields fell further.

German 30-year bond yields hit a fresh record low at-0.066%. Ten-year Bund yields were down 2.5 bps at -0.52%.

"The CNY above 7 has triggered more risk off inglobal bonds which is why safe-haven bond yields have continuedto fall," said Rainer Guntermann, rates strategist atCommerzbank.

Some analysts suggested the fall in yields also reflected amove by Chinese authorities to buy Bunds instead of U.S.Treasuries.

"There is speculation that the PBoC could intervene and buybunds," said Rainer Guntermann, a rates strategist atCommerzbank. "If they were to slow the weakening of the CNY theywould buy Treasuries, but in this situation they could switchtowards Bunds."

Irish 10-year bond yields dipped into negative territory at-0.005% as investors shifted their focus from Brexit to moreglobal concerns.

Irish 10-year bonds had underperformed the broader markettowards the end of last month as the risk of a no-deal Brexitappeared to rise.

Long-dated bonds continued to outperform on Monday, and mostother 30-year bond yields fell by five basis points,.

Weak data only reinforced the case for monetary easing fromcentral banks, pushing U.S. and British bond yields lower too.

Growth in the U.S. services sector decelerated in July toits weakest level in three years, a private survey released onMonday showed.

Earlier, the euro zone composite final PMI, considered agood measure of overall economic health, dropped to 51.5 in Julyfrom June's 52.2, moving closer to the 50 mark separating growthfrom contraction.

The bond market rally did not exclude peripheral bondyields, which tend to rise in times of risk aversion.

Italy's and Spain's 30-year bond yields fell 3-4 bps each,despite political uncertainty in both countries.,.

The latest services PMI were mixed. A more positive readingfrom Italy stood out in a gloomy picture overall.

Italy's economy may be set for a recovery in the next fewmonths, two surveys suggested on Monday, giving the governmentsome breathing space as it prepares a 2020 budget in the autumn.

(Reporting by Virginia Furness, additional reporting by DharaRanasinghe; editing by Larry King)

Login to your account

Don't have an account? Click here to register.

Quickpicks are a member only feature

Login to your account

Don't have an account? Click here to register.