Yields on eurozone government bonds fell sharply across the curve on Thursday. The reason was a 20 percent drop in oil prices and the Democrats' victory in the US elections.
Yields on eurozone government bonds fell sharply across the curve on Thursday. The base yield dropped to the lowest level since August.
The yield on ten-year German Bund bonds fell to 3.27 percent. This updated the minimum in almost three months and broke through the autumn support levels. At the short end of the curve, the yield fell to 2.984 percent, breaking the 3 percent threshold and reaching the minimum since October 2.
The main reason was the rapid fall in oil prices. Overnight Brent collapsed almost 9 percent and fell below 100 dollars per barrel. Losses for the week amounted to about 20 percent. If the decline continues, this will be the largest weekly drop since April 2020.
The decline in energy prices changed the macroeconomic picture for European bond managers. In October, rising oil and gas prices created stagflationary pressure in the eurozone and threatened a new ECB rate hike. Now imported price pressure is quickly disappearing, easing the burden on companies and households.
The second factor is the Democrats' victory in the US midterm elections. Voters took full control of Congress away from the Republicans. Traders expect that an opposition Congress will limit Washington's unilateral military actions. This revived hopes for behind-the-scenes diplomacy between the US and Iran and reduced the threat of a conflict that could block the Strait of Hormuz.
The Bank of England is expected to announce its first rate hike since 2023. Yields on British bonds held near the August low at 5.098 percent. The rate reflecting expectations for Bank of England policy was at more than a month low at 4.72 percent. Analysts from Jefferies expect a "soft" hike and consider it the last in the cycle.