by 3 minutes Read about the yields on government bonds in the Eurozone’s periphery. tmsnrt.rs/2ii2Bqr (Rewrites the lead, adds an analyst comment, and some context) Reuters, MILAN, July 2 – Government bond rates in the Eurozone dipped on Friday, matching a move in Treasuries ahead of U.S. jobs data that could impact the Federal Reserve’s economic narrative. 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. The European Central Bank (ECB) intends to crack down on banks that take on too much risk with financial instruments, according to Andrea Enria, the ECB’s top supervisor. Concerns over the impact of a prospective monetary tightening in China, as well as the Delta version of the coronavirus, on the global economy put 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. The 10-year government bond yield in Germany, the bloc’s benchmark, fell 3.5 basis points to -0.23 percent, the lowest level since mid-June and the sharpest decline since May 26. When determining its policy stance, the Fed has been focusing on the labor market’s recovery and inflation, and most observers believe it will be a few months before those paths become more apparent. Data about employment in the United States “For it to have an impact on the market, it must be far from consensus. 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.” According to Unicredit analysts, U.S. rates have little left to fall after the data because they are already “trading at historically low levels.” Investors are increasingly concerned about tapering in the euro zone, with the Pandemic Emergency Purchase Programme (PEPP) set to end in 2022, and bond supply in the EU likely to increase. 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 Kirsten Donovan edited the piece./n
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