UPDATE 2-Eurozone bond yields continue to decline as bond rally continues

* Eurozone Periphery Government Bond Yields tmsnrt.rs/2ii2Bqr (add details, update prices)

July 20 (Reuters) – German bond yields fell to their lowest level since February on Tuesday, pushing the entire German yield curve to the brink of collapse as investors continued to buy government bonds.

After fears around the Delta variant of the coronavirus and continued bond position adjustments pushed German and US Treasuries yields to their lowest since Monday on Monday, the rally continued on Tuesday even as the stock markets were rising on both sides of the Atlantic. .

After relatively contained movements at the start of the session, euro area bond yields fell sharply and this accelerated after the opening of the US trading session as US Treasury yields fell sharply.

The German 10-year yield, the benchmark for the euro zone, fell more than 5 basis points to -0.44%, the lowest since February.

Two-year yields, which have so far been much more stable than the rest of the yield curve, fell almost three basis points to -0.725% in their biggest daily decline since June 2020.

Germany’s yield curve, measured by the spread between two-year and 10-year rates, tightened to 27bp, the narrowest since February, a move reflecting economic uncertainty.

German 30-year rates led the rally, falling more than six basis points to 0.015%. They are approaching sub-zero levels for the first time since February. A move below zero would push the entire German yield curve into negative territory.

Eurozone real yield, which excludes the impact of expected inflation, as measured by swaps, fell to a new all-time low of -1.56%

“It’s not all about risk,” said Peter McCallum, rate strategist at Mizuho, ​​noting the rise in European equities and the relative stability of credit spreads on Tuesday.

“The risk aversion of equities has not been so dramatic that it has sparked this kind of movement. So that’s when you think there is something else and that it makes sense that people who take (short) positions are part of it, ”he added, highlighting the declines. sudden bond yields over the past two sessions.

These sudden movements often occur when stop-loss orders – to buy or sell bonds when a certain level is breached – are triggered.

Although lower-rated bonds from Italy, Greece and Spain also rallied, yields fell less than those of Germany, widening the spreads between their 10-year bonds and those of the United Kingdom. ‘Germany – in fact their risk premiums – of two basis points each.

The 10-year Italian government bond yield fell to its lowest level since April at 0.677%. The risk premium on its 10-year debt reached its highest level since July 8 at 112 bps and that on 30-year bonds at 166 bps, the highest since mid-May.

Five-year yields were on the verge of turning negative for the first time since April, falling as low as 0.002%.

Greece’s risk premium widened to its highest since the end of May at 110bp. Spain was at its widest since last November at 75 basis points.

Germany raised 3.349 billion euros in the reopening of a seven-year bond auctioned earlier, which received decent demand. (Reporting by Yoruk Bahceli, editing by Sherry Jacob-Phillips, Shailesh Kuber and Gareth Jones)

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