Eurozone Borrowing Costs Rose On Stimulus Exit Talks

Forex News

Eurozone borrowing costs increased thanks to comments from the ECB officials. Peter Praet (ECB chief economist) confirmed that inflation is getting closer to the 2% objective and that the asset purchase program exit will be discussed next week.

Market’s reaction was rather sharp. 10-year German bond yields grew 5 bps to 0.42%, marking the biggest daily increase in a week. Eurozone bond yields rose 5-9 bps, Italy doesn’t count. Italian 10-year bond yields lifted 20 bps to 2.96%. Short-dated bond yields lifted 33 bps to 1.32. The single currency reinforced to its 10-day maximum versus the greenback.

Italy is expected to stage some serious upward pressure on the peripheral debt due to ECB’s policy decisions and spending reforms from the new government. The fiscal spending plans will particularly blow out Italy’s fiscal deficit to 4.4 of Gross Domestic Product and increase the primary surplus from 1.9% of GDP, pushing it into a negative territory of -3.9% within two next years.

A chief strategist at Nordea, Jan von Gerich stated:"The market is very sensitive to changes in the central bank outlook and with a change in the ECB's stance looming, the sensitivity is increasing".

After the ECB’s statement, money markets started pricing around 90% odds of a rate hike by July 2019.

In US, 10-year Treasury yields grew 2 bps to 2.94%.