Government Euro bonds surge after Fed interest rate decision
As the US Federal Reserve decided to maintain the benchmark interest rate at its record low, European government bonds saw an impressive rise. The decision may also encourage the European Central Bank (ECB) to reinforce their intended stimulus measures.
In detail, Germany’s ten-year bonds saw a considerable increase alongside their counterparts in Italy and Spain. The German bonds specifically, dropped eight basis points, or 0.08%, to 0.70%. Italy’s bonds decreased to 1.83%, whereas Spanish government securities declined seven basis points, or 2.02%. These movements were most likely inspired by the US Federal Reserve’s decision to not alter the 0.25% interest rate, encouraging the ECB to favour more extensive quantitative easing programmes.
Mario Draghi and other Euro Zone policymakers, who have continuously debated about how much investment should be placed into quantitative easing, now seem keener on expanding their asset-purchasing strategies. Both Italian and Spanish government securities were able to reduce their yields to record lows after the ECB initiated in a €1.1 trillion bond purchasing strategy, encouraging inflation and growth throughout these countries. Germany too, saw their bond yields slide to a low that had not been seen since July this year.
BNP Paribas global head of Group-of-10 rates strategy, Laurence Mutkin, explained, “If the developments over summer held the Fed back from moving when they’re at the beginning of a tightening cycle, what does that mean for the ECB, who are still in the midst of easing?”
“It implies that there ought to be more easing to come. We think during the fourth quarter they’re going to announce an extension of QE.”
Steven Major of HSBC also agreed that more quantitative easing should be considered by the ECB, stressing on the fact that “The implication for Europe is that the ECB may need to ease policy further.”
“If it’s true there is a competitive devaluation going on, then what the Fed did tonight doesn’t help the ECB. This will take pressure off risky assets. I will be in favor of those. Peripherals are likely to do well.”
As the US Federal Reserve decided to maintain the benchmark interest rate at its record low, European government bonds saw an impressive rise. The decision may also encourage the European Central Bank (ECB) to reinforce their intended stimulus measures.
In detail, Germany’s ten-year bonds saw a considerable increase alongside their counterparts in Italy and Spain. The German bonds specifically, dropped eight basis points, or 0.08%, to 0.70%. Italy’s bonds decreased to 1.83%, whereas Spanish government securities declined seven basis points, or 2.02%. These movements were most likely inspired by the US Federal Reserve’s decision to not alter the 0.25% interest rate, encouraging the ECB to favour more extensive quantitative easing programmes.
Mario Draghi and other Euro Zone policymakers, who have continuously debated about how much investment should be placed into quantitative easing, now seem keener on expanding their asset-purchasing strategies. Both Italian and Spanish government securities were able to reduce their yields to record lows after the ECB initiated in a €1.1 trillion bond purchasing strategy, encouraging inflation and growth throughout these countries. Germany too, saw their bond yields slide to a low that had not been seen since July this year.
BNP Paribas global head of Group-of-10 rates strategy, Laurence Mutkin, explained, “If the developments over summer held the Fed back from moving when they’re at the beginning of a tightening cycle, what does that mean for the ECB, who are still in the midst of easing?”
“It implies that there ought to be more easing to come. We think during the fourth quarter they’re going to announce an extension of QE.”
Steven Major of HSBC also agreed that more quantitative easing should be considered by the ECB, stressing on the fact that “The implication for Europe is that the ECB may need to ease policy further.”
“If it’s true there is a competitive devaluation going on, then what the Fed did tonight doesn’t help the ECB. This will take pressure off risky assets. I will be in favor of those. Peripherals are likely to do well.”
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