Eurozone periphery bonds gain as Fed July meeting minutes reveal contrarian views on rate hike

The Eurozone periphery bonds gained Thursday as investors’ expectations for upcoming rate hike waned after Federal Reserve July meeting minutes increased doubts over rate hike this year.

The French 10-year bund yield dipped 2 basis points to 0.152 percent, Irish 10-year bonds yield dipped 1-1/2 basis points to 0.396 percent, Italian sovereign bond inched lower 2 basis points to 1.097 percent, Netherlands 10-year bonds yield tumbled 2 basis points to 0.031 percent, Spanish 10-year bonds yield slid 2 basis points to 0.949 by 09:50 GMT.

Minutes from the 26 – 27 July FOMC meeting indicated that FOMC officials were split on whether a rate hike was needed soon. Overall, many judged that it was appropriate to wait for additional information that would allow them to evaluate the underlying momentum in economic activity and the labour market and whether inflation was continuing to rise gradually to 2 percent as expected.

However, several participants suggested there would likely be ample time to react if inflation rose more quickly than they currently anticipated, and they preferred to defer another increase in the federal funds rate until they were more confident that inflation was moving closer to 2 percent on a sustained basis.

On balance, participants generally indicated that their economic forecasts had changed little over the intermeeting period, continuing to anticipate that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labour market indicators would strengthen.

Moreover, the Portuguese bond yields are trending higher on the back of DBRS ratings agency comments warning that the country’s BBB credit rating was at risk from mounting pressures from the effects of slow growth, burdensome govt and corporate debt levels and banking sector problems.

Meanwhile, the pan-European STOXX 600 index was up 0.61 percent and the euro-area blue-chip gauge, the STOXX 50 climbed 0.10 percent. The DAX trading 0.43 percent higher and the CAC-40 rose 0.14 percent by 09:50 GMT.