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Eurozone bond yields tumble further
YIELDS on eurozone government debt tumbled to record lows for a second consecutive day yesterday, amid deepening market gloom over economic prospects for the 12-nation bloc. Benchmark ten-year German government bonds sank to 3.121 per cent before closing three basis points lower at 3.133 per cent after the Dutch central bank slashed its forecast for growth in the Netherlands this year from 1.7 per cent to just 0.4 per cent. The latest fall in yields is likely to fuel consternation among European Central Bank policymakers, who are trying to dampen hopes of an impending interest rate cut and leave investors puzzling where bond markets are headed next. Axel Weber, a member of the ECB's governing council, stressed yesterday that the central bank was in "wait-and-see" mode. Otmar Issing, the ECB's chief economist, also said it was being made "a scapegoat for many problems" in Europe's economy. However, City economists suggested that Europe's lacklustre economic performance might force the bank to act sooner rather than later. Fixed income markets in the US face a similar conundrum. Alan Greenspan, chairman of the Federal Reserve, has admitted that he is at a loss to explain why yields on longer-dated US bonds are so low. On Tuesday he suggested that "new forces" might account for the low level of interest rates. The dip in borrowing costs prompted a rush of companies to tap the corporate bond markets yesterday. GlaxoSmithKline, Europe's largest drugs maker, said that it would raise as much as â¬1.5 billion through the sale of two bonds, while LVMH, the luxury goods maker, and Veolia, the French utilities company, each sold â¬600 million in new paper. If the central banks can't predict the likely response to rate changes, or if structural changes are occuring globally but no one has a good handle on them, expect a lot of financial and economic instability for the next few years. Posted by: too true 2005-06-09 |
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