European bond markets await eurozone rate decision

Prices on government bonds in the UK and in Europe were mixed but mostly down and yields were generally up on Friday due to worries about rises in interest rates and other economic news.

In the eurozone, investors seemed to be waiting to see whether the European Central Bank will raise interest rates a quarter of a point as expected before committing themselves. In addition, bond prices were also still being affected by Thursday’s Ifo survey, which showed business sentiment in Germany at a 14-year peak.

At midday, yields on the two-year Schatz were down, but only by 0.7 basis points to 2.971 percent, while the ten-year Bund saw yields up by 0.4 basis points to 3.484 percent.

In the UK, gross domestic product data was more positive than had been expected, causing expectations of an interest-rate cut by the Bank of England in the near term to dwindle. GDP growth in the fourth quarter was at 0.6 percent and year-on-year growth was revised up from 1.7 percent to 1.8 percent.

Two-year gilts were yielding 4.300 percent, a rise of 2.1 percent. Ten-year gilts added 1.1 basis point to yield 4.144 percent.

Meanwhile, in Japan, the ten-year government bond gained 4 basis points after a rise on Thursday as prices fell further in reaction to comments by the governor of the Bank of Japan that seemed to imply he hopes to change Japan’s relaxed monetary policy as soon as possible.

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