Eurozone: Coronavirus lockdown risk reduces bond yields

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Eurozone bond yields are falling today, with the overall German curve moving in negative territory for the first time since August, as the country’s health minister avoided blocking a global lockdown in dealing with Covid-19.

The situation in Germany with the coronavirus is so critical that a lockdown, even for those vaccinated, cannot be ruled out, Health Minister Jens Spann said today.

Previously, Austria had imposed a new general lockdown and vaccination obligation for the entire population since February.

Europe has once again become the focus of the pandemic in recent weeks, but markets have remained relatively calm so far.

The yield on German 10-year bonds fell to its lowest level since mid-September, at -0.33%, falling 5 basis points during the day, reversing the increase at the beginning of the session. The yield on 30-year German bonds, which had risen to 0.4% in mid-October, returned to negative territory, while the yield on two-year bonds fell to -0.786%, the lowest level since early August.

“A global lockdown in Germany would be extremely bad news for the recovery of the economy,” said a fund manager at Swiss asset management company Vontobel.

Figures released earlier today show that producer prices in Germany rose 3.8% in October from a month earlier, well above the 1.9% forecast by economists in a Reuters survey, an additional indication that inflationary pressures are rising. .

Money markets have withdrawn bets on raising interest rates next year, no longer discounting their 10 basis point increase in December 2022, although it is still thought there is a more than 50% chance that this will happen.

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