[BRUSSELS] Eurozone government bond yields edged up on Tuesday (Jun 17) with high levels of uncertainty surrounding the possible outcome of the conflict in the Middle East.
Investors were also awaiting the result of the Federal Reserve policy meeting later this week.
US President Donald Trump said he wanted a “real end” to the nuclear problem with Iran and indicated he might send senior American officials to meet with Iranian counterparts as the Israel-Iran air war raged for a fifth straight day.
German 10-year yields, which serve as the benchmark for the euro area, rose one basis point (bp) to 2.54 per cent. Two-year Schatz yields were up one bp at 1.85 per cent.
“This looks like a minor regional shock, while the way the conflict is resolved will have a significant impact,” said Philippe Waechter, chief economist at Ostrum AM.
He recalled there was no significant impact on long-term interest rates in the United States or Europe.
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“And investors, unsure of which direction it will take, are in a wait-and-see position,” he said.
Waechter added that the oil price had not exceeded its level at the beginning of this year, recalling media reports suggesting that Saudi Arabia could increase its oil supply.
The world oil market appears well-supplied this year in the absence of a major disruption, the International Energy Agency said on Tuesday.
Brent crude futures rose more than 1.5 per cent, after dropping sharply the day before.
Markets slightly reduced their bets on the European Central Bank easing cycle, pricing in an ECB deposit facility rate at 1.78 per cent in December from 1.75 per cent last week.
German investor morale rose more than expected in June, the ZEW Economic Research Institute said on Tuesday.
Fed policymakers will begin a two-day meeting on Tuesday amid risks of a new commodity price shock and fresh US data expected to show a drop in retail sales and sluggish factory output in May.
In an opinion piece in the Financial Times, ECB President Christine Lagarde cited a “global euro moment” at this time, but said a step toward greater international prominence for the currency must be earned, mentioning several challenges the European Union faced.
Italian bonds slightly underperformed Bunds, with yields on the 10-year rising 2.5 bps to 3.51 per cent. The yield gap versus Bunds was at 96 bps; it hit 84.20 bps last week, its lowest since March 2015. REUTERS
