Bond investors wait for more headlines on EU recovery fund

Hopes are high that the 750 billion-euro ($851.70 billion) fund will be approved at an EU summit late next week. Intended to mostly offer grants to the countries worst hit by the coronavirus, it has been one of the main drivers of a recent drop in Southern European borrowing costs, led by Italy. 

On Wednesday, European Council President Charles Michel said the EU needed to reach an agreement quickly on the fund but much negotiation was still needed. 

Euro zone finance ministers will meet at 1300 GMT to select their new leader. German Chancellor Angela Merkel and Dutch Prime Minister Mark Rutte will give a joint news conference in Berlin at 1830 GMT. 

“We don’t anticipate a fast agreement (little in the EU moves quickly), but would be cautious around putting too much weight on negative-sounding headlines, which are almost certain to be seen,” Mizuho analysts told clients. 

“Instead, we stick to our expectation for a slow but inexorable grind towards a consensus relatively close to the Franco-German proposal,” they said, referring to a plan for 500 billion euros in grants. The EU later added 250 billion euros in loans to the plan. 

On Thursday, Germany’s 10-year yield was down 1 basis point to -0.45%, close to one-week lows. Italian 10-year yields were unchanged at 1.28%. 

Long-term gauges of euro zone inflation expectations fell to a week-and-a-half low at 1.10% after hitting their highest since early March and nearing 1.15% in late June. They remain above their record lows just above 0.70% in March. 

The European Central Bank is prepared to get more innovative with its monetary policy tools if necessary, France’s central bank chief, a governing council member, said. 

Italian banks increased their domestic government bond holdings in May, to 434.1 billion euros from 419.3 billion in April. 

In the primary market, Ireland sold 1.5 billion euros of 7-, 10- and 30-year bonds in an auction, the top of the range originally announced. 

Reported by Yoruk Bahceli  

Sourced Reuters 

For more Banking & Finance and Daily news follow The European Magazine