Germany’s Bonds Erase Decline as Effect From Fed Minutes Wanes

  • 10-year bund yield retreats from highest level in two weeks
  • Euro-area bonds supported by ECB’s accommodative policy

German government bonds erased their earlier decline, in a sign that the European Central Bank’s accommodative monetary policy carries more weight for euro-area debt than the Federal Reserve’s more hawkish stance.

Yields on 10-year bunds retreated from a two-week high reached after the U.S. Federal Reserve put an interest-rate increase firmly on the table for its June meeting. Euro-area yields, already restrained by the ECB’s unprecedented bond-buying program, were weighed down by the minutes released Thursday from region’s central bank, which showed it sees “major deficiencies” in structural reforms amid the threat of persistent deflationary pressures.

“Bonds are just reversing some of the Fed moves we saw last night,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. He said the ECB minutes “support the general euro-zone fixed-income backdrop, but volatility in yields and risk assets over the last 24 hours has really been a Fed-minutes phenomenon for the most part.”

Euro-area government bonds have returned 0.6 percent this month through Wednesday, while investors of U.S sovereign debt have lost 0.3 percent over the same period, according to data compiled by Bank of America Merrill Lynch.

German 10-year bund yields were little changed at 0.17 percent as of 4:14 p.m. in London, having earlier reached 0.21 percent, their highest since May 5. The price of the 0.5 percent security due in February 2026 was at 103.22 percent of face value. The yield on similar-maturity French bonds was 0.51 percent.

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