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Friday, 25 June 2021

Euro zone yields come off one-month lows after Brexit talks extended

London and Brussels agreed on Sunday to "go the extra mile" in coming days to try to reach a trade agreement.

Reuters , Monday 14 Dec 2020
EU/Brexit
Talks between Boris Johnson and Ursula von der Leyen.AFP
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Euro zone government bond yields rose off one-month lows on Monday as a last-gasp extension of Brexit talks eased fears of a messy divorce between Britain and the European Union.

London and Brussels agreed on Sunday to "go the extra mile" in coming days to try to reach a trade agreement despite missing their latest deadline to avert a turbulent exit for Britain from the European Union's orbit at the end of the month.

That was enough to pull high-grade euro zone bond yields off last week's one-month lows, even though a number of countries within the bloc are contemplating fresh lockdown restrictions to quell the rise of COVID-19 cases.

"It's political will at this stage rather than what's possible, but what's clear now is that it's never really over. If there's no deal, we won't really know because talks will go on until the very last minute," said ING rates strategist Antoine Bouvet.

"If that is the case, we will continue to have a grind lower in rates progressively, a deal will give you a knee-jerk reaction higher."

Both euro zone and Gilt yields were about 1 to 3 basis points across the board, with Germany's 10-year yields , the benchmark for the bloc, higher 1.5 bps at -0.623%.

British 10-year Gilts were up 2.5 bps at 0.20%, while Ireland , the euro zone country most affected by Brexit saw its 10-year borrowing costs rise off last week's record low to -0.31%.

Elsewhere, stocks were higher in Asia and Europe as the United States began its massive vaccination programme, boosting hopes of a recovery in a global economy that's been crippled by the spread of the COVID-19 pandemic in the past year.

The news comes just in time to counter the impact of a tightening of lockdown restrictions being contemplated in a number of European countries, including Germany and Italy.

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