European bond market: Concerns over economic growth boost safe-haven demand, European bonds rise

European bond yields rose, and more and more investors are worried that a long-term conflict in the Middle East could slow global economic growth, thereby increasing demand for safe-haven bonds.

The yield on Germany’s two-year government bonds fell by 5 basis points to 2.63%; earlier this month, yields surged because the market speculated that the latest oil shock would intensify inflation risks and raise the likelihood that global interest-rate hikes will be needed.

German government bonds followed U.S. Treasuries higher and reversed course after four straight weeks of declines; medium-term bonds led the gains.

Swap contracts are pricing in nearly a 60% chance that the European Central Bank will raise rates at its April meeting.

Germany’s March inflation accelerated significantly, supporting the view that the European Central Bank may raise rates soon; investors are waiting for other European countries’ CPI data to be released on Tuesday in order to assess inflation risks over the coming months.

UK government bonds rose, with the yield on two-year government bonds falling by 4 basis points to 4.45%.

Traders price in less than a 50% chance of a Bank of England rate hike next month; just a few weeks ago, they had fully priced in the possibility that the next meeting would raise rates by 25 basis points.

Market:

Germany government bond yields fell by 6 basis points to 3.03%;

German government bond futures rose by 76 points to 125.24;

Italy’s 10-year government bond yields fell by 8 basis points to 3.97%;

The Italy-Germany government bond spread narrowed by 1 basis point to 94 basis points;

France’s 10-year government bond yields fell by 8 basis points to 3.75%;

The 10-year UK government bond yield fell by 5 basis points to 4.92%.

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