LONDON, Aug 19 (Reuters) – The pressure on euro zone government bonds eased on Wednesday, with yields slipping from multi-year highs after the U.S. Treasury announced extra liquidity support for longer-dated securities.
Germany’s 10-year yield hit a 15-year high of 3.275% before slipping back to trade roughly flat at 3.258%.
French 10-year yields rose to their highest since 2008 above 4.13% while Italian 10-year yields rose to their highest since March above 4.1% before both also slipped back.
Yields had risen on Tuesday as concerns about inflation and high government debt gripped bond markets.
The inflationary impact from oil prices was to the fore again on Wednesday, with Brent crude rising to its highest since late July at more than $92 a barrel, causing traders to nudge up bets on central bank rate increases.
However, the U.S. Treasury announcement that it would double the size of liquidity support buyback operations for longer-dated bonds caused U.S. yields to drop and halted the selling in Europe, though the impact was less pronounced across the Atlantic.
“Investors are very concerned regarding debt sustainability of sovereigns around the globe, especially developed markets,” said Michael Weidner, co-head of global fixed income at Lazard Asset Management.
“Then we have the situation around the Iran war. Obviously we’re not even close to being resolved or any credible solution in sight.”
Weidner said that thinner market liquidity during the summer could be exacerbating moves in bonds.
Longer-dated bonds, which tend to reflect expectations about the economy and government borrowing rather than central bank interest rates, were again at the epicentre of the selloff.
Analysts and investors said high levels of government and AI “hyperscaler” borrowing were concerns and that resilient economic growth was another factor.
Germany’s 30-year yield rose to its highest since 2011 at 3.787% but was last 1 basis point lower.
Germany on Wednesday sold €3.8 billion ($4.4 billion) of 10-year debt, with demand soft.
Traders in money markets were last pricing in about 45 bps of further European Central Bank monetary tightening this year, up from 40 bps on Friday.
($1 = 0.8624 euros)
(Reporting by Harry RobertsonAdditional reporting by Colin BarrEditing by Toby Chopra and David Goodman)
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