BERLIN: German, Spanish and Italian borrowing costs hit 2015 highs as a global sell-off in government bonds, sparked in part by easing deflation fears and investor weariness with ultra-low yields, accelerated.
Benchmark 10-year Bund yields traded at 0.58 percent, having hit a record low of 0.05 percent last month, when many investors expected them to turn negative due to the impact of the European Central Bank’s trillion euro bond buying programme.
Market participants are still struggling to fully explain the moves. The sell-off gathered speed last week, coinciding with data showing prices rose faster than expected and the first expansion in euro zone private lending in three years.
Rising oil prices are reviving inflation expectations globally, with yields on UK gilts and U.S. Treasuries also rising sharply.
But many analysts say easing deflation fears alone should not have led to such a steep rise in yields. German inflation was still a very low 0.3 percent in April.
Traders say the move snowballed after the initial sell-off took yields to levels where investors had set automatic stop-loss triggers on bets that bonds would rally further. Low liquidity in global bond markets after central banks around the world bought up large chunks of government debt also exacerbated the moves.
From a macro perspective the sell-off was long overdue – we’ve seen over the past few months an improvement in euro zone data,” said Jan von Gerich, chief fixed income analyst at Nordea in Helsinki.
