Euro bond yields have fallen on hopes of a peace deal with Iran and weaker oil prices.
BERLIN – Euro zone bond yields fell on Friday (22 May) as investors responded to signs of progress in Iran peace talks, easing government borrowing costs from the multi-year highs reached earlier this week.
As reported by Reuters, the yield on Germany’s 10-year government bond (DE10YT=RR), the region’s main benchmark, fell 4 basis points to 3.062%.
Meanwhile, Italian and French bond yields also edged slightly lower (IT10YT=RR, FR10YT=RR). Bond yields move inversely to bond prices.
Germany’s 10-year bond yield had touched a 15-year high of 3.2% on Tuesday as investors prepared for the possibility of interest rate hikes after disruptions linked to the Iran war triggered a surge in energy prices.
However, Brent crude prices (LCOc1) fell on Thursday and were last traded at around USD104 per barrel, compared with USD113 on Monday, after Iran and the United States reported progress in peace negotiations.
US Secretary of State Marco Rubio said there were “some positive signs” in the negotiations. A senior Iranian source told Reuters on Thursday that no agreement had yet been reached, but differences in views had narrowed.
“Geopolitical news continues to drive market volatility,” said Benjamin Schroeder, senior rates strategist at ING.
“Although the signals emerging are sometimes contradictory, there are indications of progress, or at least a narrowing of the gap between the positions of the two conflicting parties.”
Germany’s two-year bond yield (DE2YT=RR), which is sensitive to expectations for European Central Bank interest rates, fell 4 basis points to 2.642%.
Money markets on Friday priced in around 65 basis points of interest rate hikes from the European Central Bank this year, implying two rate increases and a 60% chance of a third. This was down from more than 70 basis points at the start of the week. (DK/LM)
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