By 3 Min Read* Government bond yields in the Eurozone’s periphery tmsnrt.rs/2ii2BqrM Reuters, ILAN, July 2 – Investors remained cautious ahead of U.S. jobs data, which might impact the Federal Reserve’s narrative about the economy and monetary policy stance. The European Central Bank (ECB) sent more dovish signals, with President Christine Lagarde stating that the euro zone’s economy is beginning to recover from a pandemic-induced depression, but that this recovery is yet weak. Concerns over the impact of a likely monetary tightening in China and the Delta variation on the global economy are expected to keep risk sentiment on hold. The Shanghai Composite stock index sank 1.2 percent on speculation that China’s central bank would start tightening monetary policy, as well as concerns among international investors about President Xi Jinping’s warning to foreign powers in a speech commemorating his party’s centennial. “After the lower PMIs, the continued uncertainty over the Delta variant, China, could increasingly become an issue,” Commerzbank analysts wrote in a note to clients. Germany’s 10-year government bond yield, the bloc’s benchmark, plummeted 1.5 basis points to -0.216 percent, a new low since June 21. The Fed has been focusing on the labor market’s recovery and inflation, and most experts believe those trends will take a few more months to emerge. “I predict a quiet morning today ahead of U.S. data, which must be significantly different from consensus to have an impact on the market. Otherwise, I believe the current period of stabilization will continue “Allianz Global Investors’ senior fixed income specialist, Massimiliano Maxia, said. “Overall, positioning appears to have become more balanced,” the Commerzbank analysts noted, “although a downside surprise still looks certain to underpin U.S. Treasuries and Bunds.” Investors are increasingly concerned about tapering in the euro zone, with bond supply projected to grow in 2022 when the Pandemic Emergency Purchase Programme (PEPP) expires. The issuance of euro zone government bonds and European Union bonds “is projected to expand in 2022,” according to Citi analysts. “After PEPP ends, the Asset Purchase Program (APP) will need to be extended to EUR55 billion each month for EGBs and substantially more for the EU to maintain the annual net cash requirement.” (Stefano Rebaudo contributed reporting, and Emelia Sithole-Matarise edited the piece.)/n
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