Eurozone government bond yields held near recent lows on Monday on concerns over European and global economic growth

Reported by HPMM Group according to FINANCIAL TRIBUNE ;     Investor morale in the eurozone deteriorated for the third month in April, a survey showed on Monday, on concerns about a slowdown in global growth as trade tensions rise between the United States and China.

Sentix’s index for the eurozone fell to 19.6 in April from 24.0 in March. The Reuters consensus forecast was for a reading of 20.0. The drop was due to lower economic expectations, which turned negative for the first time since July 2016, Reuters reported.

“Even though the current situation is still rated as excellent … the prospects for the future have become massively gloomier,” Patrick Hussy, managing director at Sentix, said in a note.

“The customs disputes, fueled by US President Donald Trump, are leaving their traces.” Trump predicted on Sunday that China would take down its trade barriers, expressing optimism despite escalating trade tensions between the world’s two largest economies that have roiled global markets in the past week.

The countries have threatened each other with tens of billions of dollars’ worth of tariffs and Chinese officials have said this is not the time for negotiations.

A Sentix index for Germany also fell for the third month, falling to 24.4 from 29.1 in March. “The German economy is facing powerful headwinds,” Hussy wrote.

“The domestic political framework conditions (grand coalition) are increasingly perceived as a burden, and geopolitics is also making its contribution to the export nation’s restrained optimism.”

Sentix conducted the survey of 982 investors between April 5 and 7.

Yields Down

Eurozone government bond yields held near recent lows on Monday on concerns over European and global economic growth and at the start of a hefty week of European sovereign debt redemptions.

In a market preoccupied with the implications of a potential trade war between the United States and China on global growth, safe haven European government bonds such as German Bunds are proving a popular investment.

Although Trump expressed some optimism this weekend, the world’s two largest economies have threatened each other with tens of billions worth of tariffs in recent days and Chinese officials have said this is not the time for negotiations.

As a result, Germany’s 10-year government bond yield is continuing to hover around the 0.50% level, far below the year’s highs of 0.81%.

“It looks like we’ve reached a steady state for the European market, more particularly for the Bunds,” said Commerzbank strategist Rainer Guntermann. “Investors are just not willing to reduce duration given the concerns about the slowdown in the global economy.”

Most eurozone bond yields—which move inversely to price—are now close to multi-month lows and on Monday they were flat to a touch lower at the start of one of the biggest weeks for redemptions in Europe.

Commerzbank estimates that around €۶۰ billion ($73.64 billion) of European government bonds are due to mature this week, and given that there is only around  €۱۳ billion of supply to counter this, yields are unlikely to rise much, analysts said.

That said, investors will keep a close eye on what European policymakers will have to say about global growth amid the trade tensions: ECB vice-president Vitor Constancio and chief economist Peter Praet were due to speak on Monday.

Already last week, the ECB’s Benoit Coeure said the mere fear of a trade war is already hurting the economy. Also, the IMF is due to release its world economic outlook report late Monday. DZ Bank analyst Sebastian Fellechner said the market will be looking to the fund for some guidance on the direction of the global economy.

“It’s interesting to see if the IMF still expects a continuation of global economic growth or if they are seeing some implications of the trade war,” he said.

The yield on 10-year US Treasury yields was 2 bps higher in European trade on Monday at around 2.80%.