German 30-year yields reach highest since 2011
Driven by investor focus on likely rise in fiscal spending
Ukraine peace deal could also lead to increase in bond supply
Aug 12 (Reuters) – German 30-year yields rose to their highest level since 2011 on Tuesday, driven by renewed investor focus on expectations of a sharp increase in fiscal spending, while U.S. economic data released earlier came in roughly in line with forecasts.
Germany is about to increase its fiscal spending massively to revive economic growth and scale up military investments.
“I don’t see a specific driver today, but the move in long-dated German yields isn’t surprising given the low volumes and the broader economic backdrop,” said Michiel Tukker, rate strategist at ING, citing the Dutch pension reform and expectations of increased issuance from Germany.
Germany’s 30-year government bond yield was up 7 basis points (bps) at 3.30%, after hitting 3.31%, its highest level since 2011.
The Dutch pension system is depriving the euro zone’s $10 trillion government bond market of a key buyer of its long-term debt, just as state funding needs a boost.
A peace deal in Ukraine could also lead to a further increase in bond supply, as Europe remains committed to supporting the country’s reconstruction.
Russian forces have made a sudden thrust into eastern Ukraine, a move that may be designed to increase the pressure on Kyiv to give up land as the U.S. and Russian presidents prepare to meet. Ukrainian President Volodymyr Zelenskiy said that an unjust peace would not last long.
U.S. long-dated bonds also underperformed with 30-year yields up 4.5 bps to 4.88%.
Euro zone borrowing costs had held steady for most of the session after the United States and China rolled over a trade truce for 90 more days, as expected.
Policy-sensitive German two-year yields were last up 0.5 bps at 1.97%, while German 10-year yields rose 5 bps to 2.74%.
Two-year U.S. Treasury yields fell after data showed that U.S. consumer price inflation was roughly in line with the expectations of economists in July, likely clearing the way for the Federal Reserve to cut interest rates in September.
U.S. consumer prices increased moderately in July, though underlying inflation posted its largest gain in six months.
“Goods that rely heavily on imports are facing pronounced upward price pressure,” said Katy Stoves, investment manager at Mattioli Woods.
“However, inflation from services, not subject to tariffs and by far the bigger contributor to the U.S. economy, may help prevent overall U.S. inflation increases,” she added.
Italy’s 10-year government bond yields rose 5 bps to 3.56%, leaving the yield gap with safe-haven Bunds at 81 bps, its lowest level in over 15 years.
(Reporting by Stefano Rebaudo, editing by Ed Osmond)
