PARIS: Borrowing rates on the eurozone and US bond markets eased in morning trading yesterday after sharp rises in response to clear signs that the US Federal Reserve will begin winding down its special easy-money policy.
The falls in borrowing costs came after several sessions of strong rises for yields on US and European bonds, and also for bonds issued by many emerging countries.
Investors had sold US and European bonds heavily on concern that they could soon be short of funds as the US Federal Reserve begins to reduce its injections of money into the financial market in order to support the US economy.
But yesterday, the rate or yield indicated by trading in Spanish 10-year bonds fell to 4.980 percent from 5.116 percent late on Monday.
The yield on Italian 10-year debt eased to 4.724 percent from 4.832 percent.
The yield on the eurozone benchmark bond, the German 10-year Bund, slid to 1.765 percent from 1.811 percent, and the French 10-year yield dropped to 2.361 percent from 2.453 percent.
The rate on the US 10-year treasury bond had reached the highest level since August 2011 on Monday, being quoted at 2.537 percent but yesterday it fell to 2.486 percent.
These prices and yields refer to trading on the secondary market for bonds already issued. They imply what a government would have to pay to borrow if it issued new debt.
The Bank for International Settlements in Basel, the so-called central bankers’ central bank, warned in a report at the weekend that central banks should begin tapering their special easy-money policies, saying businesses had had a breathing space to strengthen their positions and that only governments could engineer the necessary structural economic reforms.
The president of the Fed, Ben Bernanke, warned last week that the US central bank could slow down its programme to buy assets from financial companies by the end of the year because the US economy was beginning to recover.
At Credit Agricole CIB bank in Paris, economists noted that some members of the Fed’s policy committee “recalled that monetary policy will remain accommodating” via low interest rates, and this had helped to calm the bond market.
Economists at broker Aurel BGC commented: “The objective is to calm the markets and, above all, avert an unduly rapid rise of long-term interest rates.
This was a reference to the fact that long-term interest rates are set by the market, and that 10-year bond yields are a key part of this process.
Bond yields move in opposite direction to prices.
However, the economists warned that the correction of prices and yields on the bond market was not over and that the foreseeable ending of easy-money policies, known as quantitative easing, by central banks implied that there would be a “bursting of the bond market bubble”, and therefore yields would rise considerably.
AFP
