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Europe Fixed Income Update

· 02/08/2021 01:45

06:45 AM EST, 02/08/2021 (MT Newswires) -- As at 6.20am ET, global bond markets remained under pressure and markets seemed eager to go with the reflation story after U.S. Treasury Secretary Yellen boosted stimulus expectations. 10-year yields were up 2.9 bp in Germany and the U.S. at -0.42% and 0.51% respectively, after JGB rates closed 0.8 bp higher at 0.060%. Gilts underperformed again after the bullish BoE comments from last week. The U.K. 10-year lifted a further 3.5 bp to 0.51% and the curve steepened more sharply than in Germany or the U.S.. On the other end of the spectrum Italian BTPs continued to outperform and the Italian 10-year rate had dropped back a further -0.6 bp to 0.53%, with markets buying into the hope that former ECB head Draghi will manage to secure sufficient backing from party leaders to take over as PM. Yellen suggested the U.S. can return to full employment next year, if the stimulus package is sufficiently robust, which underpinned the global reflation story. Indeed, Bloomberg calculations suggest the pace of U.S. inflation implied in bond markets accelerated to the fastest since 2014. The global decline in new Covid-19 cases also helped as more vaccines are approved for general use. Stocks had moved higher across Europe, with global indices touching rector highs. Slightly weaker than expected German production data at the start of the session was overlooked.