European Bonds Advance amidst the Slow Economic Growth

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European Bonds Advance amidst the Slow Economic Growth
European Bonds Advance amidst the Slow Economic Growth

European Bonds Advance amidst the Slow Economic Growth

An increase has been seen in European bonds; this is happening amidst the news that German 10-year bund yields have snapped their biggest gain in two months. A major reason behind all this development according to investors and market observers is that a recent report indicates that in all probabilities, the euro-area economy will slow down further.

GDP of the Euro Region

Though there is an increase in the gross domestic product in the euro region that went up by 0.1 percent in the third quarter from 0.3 percent in the previous three months, it is still not what the EU had expected.

Reportedly, after the European Central Bank unexpectedly cut its key interest rate to a record last week, there has been debacles; for instance, the yield difference between German five-year notes and 30-year bonds was within two basis points of the highest level; it is the highest in more than 16 years.

Following the trend, Spanish and Italian bonds also rose to an extent. Whereas Portuguese bonds advanced to a great extent in the aftermath of the nation’s bond-rating outlook which received stable credit from Moody’s Investors Service; earlier it was negative and it is a big development for the Portugal economy.

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Treasury 30-Years Yields Jump

According to the latest report, it is not just bonds but treasury 30-year yields too that have gone up to an extent. This has happened amidst the news that the EU economy may not be able to catch pace even the next quarter. Moreover, after falling to a 2013 low of 2.81 percent on May 1, it is a great growth for treasury 30-year yields which has gone up by one percent.

The increase of 1 percent to 3.85 percent amid bets the Fed is moving closer to cutting its $85 billion of monthly bond-buying is one of the best developments. Additionally, there has been growth in the U.K. 30-year yield which has gone up about 70 basis points which was in doldrums early in the April this year.

U.S. Yields Extend their Gains

A similar trend was seen in the U.S. yields which extended their gains after the Federal Open Market Committee declared the last month that the national economy showed signs of underlying strength. Thereafter, several analysts started predicting that the Fed will maintain its $85 billion of monthly bond purchases at the current pace until March; however, the latest indications tell that it will taper it.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com