German yield back below zero, Brexit takes edge off Ifo boost
* German bund edges back to 2-1/2 year lows on Brexit
* Ifo data gives boost to risk sentiment, lifts bond yields
* Ifo also halts U.S. yield curve inversion
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
(Recasts with negative bund on Brexit concerns)
By Dhara Ranasinghe and Virginia Furness
LONDON, March 25 (Reuters) - Germany's benchmark 10-year
bond yield slid back into negative territory on Monday as
worries over Brexit saw investors rushing for safe haven assets,
tempering the impact of a surprise rise in business sentiment
which lifted yields earlier in the session.
Euro zone bond yields had risen after the March Ifo business
climate index rose to 99.6 from 98.7 in February and compared
with expectations for a reading of 98.5.
But German Bund yields slid back towards the 2-1/2 year lows
seen on Friday after poor manufacturing data renewed concerns
about a lasting slowdown in Europe's powerhouse economy.
The 10-year benchmark tracked the move lower in 10-year
British Gilt yields, which fell below 1 percent to 0.989 percent
for the first time since September 2017.
UK Prime Minister Theresa May said there was not yet enough
support for her to put her Brexit deal to a vote in parliament
for a third time, but she would continue with talks with
lawmakers to try to get their backing. She also said that the UK
was continuing to prepare for a no deal.
Germany's 10-year bond yield was just half a basis point
higher at -0.02 percent, and firmly into negative territory. It
had touched highs of 0.004 percent after the Ifo
"Ifo is more important than PMI and it definitely put
Friday's figures into perspective, but the reason this is not
lasting is because we have all the amendments votes on Brexit
this evening which is the main driver now," said Norbert Wuthe,
rates strategist at Bayern LB.
Other core euro zone bond yields also came off recent highs
"It (the Ifo) is a bit of a reprieve after the significant
miss from PMI on Friday and it confirms that it is the
manufacturing side of Europe or Germany which is really weighing
on sentiment," said Christoph Rieger, rates strategist at
"It confirms it is China or the general export situation
which is at the heart of the problems."
Heightened concern about the global growth outlook has
pushed German Bund yields down almost 20 bps this month, in line
with steep falls in the yields of other major bond markets.
Friday's German manufacturing activity survey showed a
contraction for the third straight month. Preliminary measures
of U.S. manufacturing and services activity for March showed
both grew at a slower pace than in February.
After Friday's U.S. numbers, the gap between yields on
three-month U.S. Treasury bills and 10-year notes
fell below zero for the first time since 2007.
That gap moved back into positive territory after the German
An inverted yield curve is widely considered to be a leading
indicator of recession, and that spread is the Federal Reserve's
preferred measure of the yield curve.
"There is a strong recession signal from the U.S. curve and
that is important," said Nordea chief analyst Jan von Gerich.
"It would be dangerous to say the move in bond yields is over-
done -- the momentum is quite strong and I wouldn't catch a
Goldman Sachs analysts said the risk-reward balance remained
in favour of being exposed to long-dated European government
"We would fade any Bund-led sell-off until there is more
convincing evidence growth is returning to an above-trend pace,"
they said in a note.
Heightened uncertainty over Brexit and world trade tensions
have also bolstered demand for safe-haven bonds.
On Monday, Japanese 10-year government bond yields
slumped to minus 9.2 basis points, the lowest
since September 2016. Australian 10-year year yields AU10YT=RR
plunged to a record low of 1.754 percent..
(Reporting by Dhara Ranasinghe; additional reporting by
Virginia Furness; Editing by Hugh Lawson and Jon Boyle)
First Published: 2019-03-25 10:14:31
Updated 2019-03-25 18:41:50
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