REFILE-UPDATE 2-German Bunds see biggest two-week drop in yields since June 2020
(Removes chart from previous version)
* German 10-yr yields down 14 bps in past two weeks
* Biggest two-week drop in yields since June 2020
* Investors reassess global growth prospects
* Euro zone bond price rally paused briefly on Friday
LONDON, July 9 (Reuters) – German government bonds, one of the world’s most liquid safe haven assets, headed on Friday for their biggest two-week fall in yields since June 2020 as investors saw a longer road to recovery from the COVID-19 crisis than expected.
The European Central Bank’s move to set a new inflation target had little impact on the market, where investors have been chasing safe assets as the coronavirus Delta variant spreads, raising a new threat to economic growth prospects.
“There seems to be the gradual realisation for many that the vaccination programmes alone won’t prove enough to get economies back to their pre-COVID normality,” Deutsche Bank macro strategist Jim Reid said.
The rally in euro zone government bond prices paused on Friday, allowing benchmark 10-year euro zone bond yields to tick 1-2 basis points higher across the board, tracking U.S. Treasuries. Analysts attributed this to a bit of profit-taking after a long rally.
Germany’s 10-year yield was up 2 basis points by 1449 GMT to -0.29%.
But Friday’s small rise in yields follows several days of heavy buying of safe-haven government bonds, driving the German 10-year Bund yield down 5.5 bps this week and down nearly 14 in the last two weeks to -0.29%.
That is the biggest drop in yields — which move inversely to price — over a two-week period since June 2020.
The slight rise follow U.S. 10-year Treasury yields, which were up six bps on Friday after having fallen 14 basis points in the first four days of the week.
European Central Bank policymakers debated a cut in stimulus at their June 10 meeting as the recovery picked up pace but eventually found “broad agreement” to maintain an elevated level of support, the accounts of the meeting showed on Friday.
The minutes came after the ECB announced on Thursday it would embark on a fundamental transformation of Europe’s most powerful financial institution, setting a new inflation target among other steps.
Observers saw the moves as largely dovish for rates. The ECB set its inflation target at 2% in the medium term, ditching its “below but close to 2%” formulation, which gave the impression it worried more about price growth above the target than below.
“The outcome of the strategy review does not come as a surprise and if anything is another step towards more dovishness,” said Carsten Brzeski, an economist at ING.
But the European Central Bank will not try to make up for lost inflation after periods of anaemic price growth and will not strive to overshoot its new 2% target, Germany’s central bank chief Jens Weidmann said.
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