LONDON: Peripheral bonds led euro zone yields down on Tuesday as dovish comments from US Federal Reserve Chair Janet Yellen bought some solace to risk markets that have started to become unnerved by a looming referendum in Britain on European Union membership.
In a speech on Monday, Yellen gave a largely upbeat assessment of the US economic outlook and said interest rate hikes were coming, but gave little sense of when.
Those remarks boosted European shares and demand for lower-rated or riskier bonds in southern Europe.
Italian, Spanish and Portuguese bond yields fell around 3-5 basis points, unwinding the previous day’s rises.
“Fed Chair Yellen’s latest dovishly interpreted speech is supporting risk markets,” said Nick Stamenkovic, macro strategist at RIA Capital Markets.
Data showing the euro zone economy grew by 0.6 percent in the first quarter of 2016, the highest rate for 12 months, and German industrial output rose slightly more than expected in April, helped boost risk appetite.
On Monday, Italian bond yields notched up their biggest one-day rise in six weeks and Portuguese yields hit a three-week high as concern that Britain might leave the EU and a setback for Italy’s government in municipal elections at the weekend brought political risks to the fore.
Peripheral bond markets are seen particularly vulnerable to Brexit risks, partly because lower-rated debt markets tend to suffer more during bouts of risk aversion.
“For a long time it seemed that markets were relaxed about Brexit risks and volatility was low and that is changing as the “Leave” campaign gains momentum and means anything that is seen as a risk asset is vulnerable,” said DZ Bank strategist Daniel Lenz
In a speech on Monday, Yellen gave a largely upbeat assessment of the US economic outlook and said interest rate hikes were coming, but gave little sense of when.
Those remarks boosted European shares and demand for lower-rated or riskier bonds in southern Europe.
Italian, Spanish and Portuguese bond yields fell around 3-5 basis points, unwinding the previous day’s rises.
“Fed Chair Yellen’s latest dovishly interpreted speech is supporting risk markets,” said Nick Stamenkovic, macro strategist at RIA Capital Markets.
Data showing the euro zone economy grew by 0.6 percent in the first quarter of 2016, the highest rate for 12 months, and German industrial output rose slightly more than expected in April, helped boost risk appetite.
On Monday, Italian bond yields notched up their biggest one-day rise in six weeks and Portuguese yields hit a three-week high as concern that Britain might leave the EU and a setback for Italy’s government in municipal elections at the weekend brought political risks to the fore.
Peripheral bond markets are seen particularly vulnerable to Brexit risks, partly because lower-rated debt markets tend to suffer more during bouts of risk aversion.
“For a long time it seemed that markets were relaxed about Brexit risks and volatility was low and that is changing as the “Leave” campaign gains momentum and means anything that is seen as a risk asset is vulnerable,” said DZ Bank strategist Daniel Lenz
