Europe’s Bonds Decline With Treasuries as Impact of BOJ Wanes

  • German 30-year securities fall, while paring earlier drop
  • Traders’ attention turns to looming Fed policy decision

The Bank of Japan’s impact on Europe’s longer-maturity bonds proved fleeting, with investors soon turning their attention to the Federal Reserve meeting later in the day.

German 30-year securities initially fell after Japanese officials said they’d amend monetary policy and concentrate on controlling yields across different maturities, before paring that slide at the start of the U.S. day. Then, as Treasuries started to decline, Europe’s benchmark long-dated securities followed suit amid speculation Fed officials will strike a hawkish tone on future interest-rate increases.

Futures pricing signals there’s only a 26 percent chance of an increase in U.S. rates today, and investors will focus more on the Federal Open Market Committee’s statement and Chair Janet Yellen’s press conference. Spanish and Italian bonds fell, following a two-day gain driven by support from the European Central Bank’s asset-purchase program.

Longer term, “the focus will still be on what the ECB can and will do,” said Elwin de Groot, senior market economist at Rabobank International in Utrecht, Netherlands. Today’s moves don’t “change the dynamic,” and European yields will continue to trend lower, he said.

German Yields

The yield on Germany’s 30-year bund rose two basis points, or 0.02 percentage point, to 0.59 percent as of 4:45 p.m. London time, after earlier climbing to 0.62 percent. The 2.5 percent security due in August 2046 fell 0.684, or 6.84 euros per 1,000-euro ($1,116) face amount, to 152.148. The yield has dropped five basis points since the end of last week.

The nation’s two-year note yields were little changed at minus 0.65 percent, leaving the difference, or spread, with the longer-dated securities at 124 basis points. The gap widened to as much as 127 basis points following the BOJ policy decision.

Spain’s 10-year bond yield rose two basis points to 1 percent, after dropping to a two-week low of 0.95 percent. The yield on similar-maturity Italian debt climbed three basis points to 1.29 percent, having fallen nine basis points in the previous two days.

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