After a sharp decline in eurozone government bond yields on Tuesday due to the Bank of Japan’s decision to maintain its ultra-loose monetary policy, there was a slight decline on Wednesday in choppy trading.
The yield on Germany’s 10-year government bonds, which serves as the benchmark for the currency union, was last down two basis points (bps) at 2.068% after fluctuating by about two bps on either side of zero in morning trading. Prices and yields follow opposite trends.
The yield on the benchmark 10-year note decreased by more than ten basis points on Tuesday, suggesting that European Bank policymakers were more likely to consider a smaller, 25 bps interest rate increase at their meeting in March. According to the report, we should still expect a 50 bps increase in February.
Overall, a Positive Sentiment
The decline in energy prices has eased worries about inflation and interest rate increases, and the benchmark German yield is now well below the 11-year high of 2.569% reached at the beginning of the year.
The Bank of Japan, through which it anchors the 10-year bond yield at roughly 0%, was the subject of Wednesday’s attention on the international financial markets. Also maintained at -0.1% were short-term interest rates.
Germany’s 2-year bond yield last increased three basis points to 2.488% on Wednesday after falling earlier in the session and by 11 basis points on Tuesday.
Italy’s 10-year yield was down four bps at 3.853% simultaneously. After reaching an 8-month low of 175 bps earlier, Germany and Italy’s 10-year yields rose to 178 bps.
After shocking the markets in December by abruptly enlarging the trading band for the 10-year bond to 50 basis points on either side of 0%, a move widely interpreted as a sign that more changes were on the way, many investors anticipated the BOJ to loosen policy further.