Eurozone periphery bonds dig deeper as global sell-off continues; German 10-year bund yields hit over 1-month high

The Eurozone periphery bonds slumped Thursday as the global sell-off continues post European Central Bank President Mario Draghi’s speech on Tuesday, with the benchmark German 10-year bund yields hitting over a month’s high ahead of the release of euro area CPI inflation data by end of this week.

The benchmark German 10-year bond yields, which moves inversely to its price, jumped 5-1/2 basis points to 0.41 percent, the French 10-year bond yields, surged 4-1/2 basis points to 0.75 percent, Irish 10-year bond yield hovered around 0.81 percent, Italian equivalent also climbed 4-1/2 basis points to 2.06 percent, Netherlands 10-year bonds yield jumped 5 basis points to 0.60 percent, Portuguese equivalents rose nearly 3 basis points to 2.99 percent and the Spanish 10-year yields traded 3 basis points higher at 1.44 percent by 09:20 GMT.

Germany’s 10-year rate traded in a wide 0.33-0.41 percent range, following yesterday’s rather large 13 bps sell-off, as the markets try to decipher where ECB policy is heading.

After Tuesday’s upbeat remarks from ECB President Mario Draghi triggered a marked adjustment, unattributed remarks to the press by ECB “sources familiar with his thinking” insisted that the market reaction to those comments had been far greater than intended, with the main message having supposedly been merely to prepare markets for an autumn announcement on the future of QE – pretty much what we already anticipate and something that the markets should have taken in their stride. Given their hardly irrational fear of a taper tantrum, many at the ECB will have been relieved to see Tuesday’s bond market adjustment peter out after yesterday's clarification was made.

Lastly, today’s flash estimates from Germany and Spain are set to show similar declines, with the former down 0.1ppt to a seven-month low of 1.3 percent y/y and the latter down 0.5ppt to a five-month low of 1.5 percent y/y. And the euro area flash CPI, due on Friday, is expected to drop 0.2ppt to 1.2 percent y/y, which would be the lowest rate this year, Daiwa Capital Markets reported.

Meanwhile, the pan-European STOXX 600 index was up 0.07 percent to 385.52, German DAX rose 0.02 percent to 12,649.50, France’s CAC 40 slipped 0.39 percent to 5,232.40 and the PSI20 Index traded 0.17 percent higher at 5,195.92 by 09:20 GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index stood neutral at 63.72 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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