Eurozone bond yields rise as global sentiment improves

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Band Dhara Ranasinghe

LONDON, April 26 (Reuters)Eurozone bond yields edged up on Monday, reflecting stronger sentiment in global markets and a growing sense that the worst could be behind for an economy hit by coronaviruses.

Most 10-year bond yields in the currency bloc rose 1 to 2 basis points on the day, while yields on US Treasuries were also slightly higher.

As bond markets stabilized after a U.S.-led liquidation earlier this year, improving economic indicators and a resumption of the COVID-19 vaccination rollout have started to put some pressure on the increase in borrowing costs in the euro zone.

The past few weeks have seen an acceleration in European vaccinations, with major countries in the European Union rolling out vaccines at a rate similar to Britain. The EU is expected to meet its goal of vaccinating 70% of adults by the summer, according to NatWest Markets.

The 10-year German Bund yield was last up 2 basis points to -0.24% DE10YT = RR, not far from the seven-week highs reached last week. 30-year bond yields, at 0.31% DE30YT = RR, were near the highs of more than a year affected last week.

Andreas Billmeier, European economist Western Asset, said the uptrend in European bond yields should be gradual and fit into the bigger picture of a recovering economy.

“If you remove the momentum from US rates, you have an economic recovery and that should go hand in hand with higher rates.”

“Note that the ECB (European Central Bank) did not make a noise when yields rose between December and February, but only after volatility from the United States kicked in.”

The ECB stepped up the pace of its bond purchases in March to contain rising borrowing costs, driven by US Treasuries.

Italy, which reached an agreement with the European Commission on its stimulus package after days of intense discussions, paved the way for its submission to Brussels by the end of April.

“The positivity of the good allocation of European funds” has not yet fully fueled the BTP / Bund spread, and there is still room for significant tightening there, “Mizuho said in a note.

The Italian / German 10-year yield spread was 103 basis points DE10IT10YT = RR

On Friday evening, S&P raised Greece’s rating up a notch to ‘BB’, citing hopes of a rapid improvement in the country’s economic and fiscal performance as the adverse effects of the COVID-19 pandemic ‘attenuate. L4N2MG3SF

The yield on Greek 10-year bonds rose around 1bp to 0.90% GR10YT = RR in line with euro area peers.

(Reporting by Dhara Ranasinghe; Editing by Kirsten Donovan)

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