Euro zone rates investors were poised for a busy trading day on Wednesday ahead of a slew of key economic data, the April ECB meeting and an EU summit at which Brexit will be discussed.
Bond yields across the bloc held lower in early trade, after weak economic growth projections from the International Monetary Fund and EU-U.S. trade tensions set the tone for Tuesday’s session.
Bond yields, which move inversely to prices, have fallen of late on weaker economic forecasts, trade tensions, and a more dovish monetary stance from the world’s largest central banks.
Germany’s 10-year government bond yield, the benchmark for the region, was last seen at -0.008 percent.
Attention now turns to the European Central Bank meeting, as well as economic indicators from across the bloc. France reported higher than expected industrial output in February.
Italy and the UK will also report industrial and manufacturing production, while U.S. inflation follows later in the session.
The ECB is all but certain to keep policy on hold, taking its time to evaluate whether its most recent stimulus is enough to arrest a rapid decline in sentiment.
Expectations of a more accommodative monetary policy promoted a strong rally in euro zone government bond yields on the date of the last ECB meeting on March 7, but it was talk of rate tiering which pushed German 10-year bund yields into negative territory for the time since 2016 two weeks later.
FURTHER DETAIL
The ECB confirmed in its March minutes that tiering had been discussed, and any further detail later on Wednesday will be keenly received.
Investors are also hoping the ECB may provide more details on its plans to issue a fresh round of cheap multi-year loans to banks to support economic growth. These loans have been particularly supportive of southern European economies such as Spain and Italy where the take-up among banks has been strong.
But strategists do not expect much guidance.
“We don’t expect too much from the ECB today,” said Christian Lenk, rates strategist at DZ Bank.
“The announcement concerning TLTROs looks unlikely. The other big topic is tiering but I don’t expect them to announce anything on that. They have already adjusted their outlook and we know how monetary policy will look until the end of the year,” Lenk said.
Peripheral and longer-dated euro zone bonds have also been helped by the strong bid for yield, which pushed Portuguese 10-year bond yields to 25-year lows, while Italy’s 30-year bond yield fell to 3.43 percent, its lowest since July 2018 .
European Union leaders will grant Prime Minister Theresa May a second delay to Brexit, but could demand she accepts a much longer extension as France pushed for conditions to limit Britain’s ability to undermine the bloc. – Reuters