German Bond Yields Fall On Omicron Concerns

Eurozone government bond yields fell on Thursday as the new Omicron coronavirus variant dampened risk sentiment.

European shares dropped after a recovery in stock markets overnight was wiped out when United States identified its first known COVID-19 case caused by the Omicron variant in a fully vaccinated patient. read more

That news had pushed U.S. Treasury yields lower after the European close on Wednesday and euro zone bond yields fell sharply on Thursday. read more

Germany’s 10-year government bond yield, the benchmark of the bloc, dropped to the lowest since September at -0.394% and was last down 4 bps to -0.37%.

Bunds remain headline-driven in line with swings in risk sentiment on mixed Omicron headlines, following reassuring WHO comments on mild symptoms.

Germany’s 30-year government bond yield fell as low as -0.085%, the lowest since February. The yield curve as measured by the gap between two and 10-year German bond yields fell as low as 34.3 bps, the flattest since September, echoing a move in the U.S.

Italy’s 10-year bond yield was last down 7 bps to 0.96%. The closely-watched spread between 10-year Italian and German yields tightened to 132 basis points after hitting the highest since November 2020 on Wednesday.

Italian bond prices are now outperforming after underperforming core and semi-core bonds in the last few days. If the ECB were to delay a decision on its bond buying programme, it could initially be seen as dovish.

“But it is a two-edged sword. It extends a period of uncertainty and, alongside it, volatility, given a potential negative impact on Italian bonds in the medium term.