Germanys 10-year yield drops below 1% as growth fears in focus

　　div classBodysc17zpet90 cdBBJodivpBy Yoruk Bahcelip

　　pReuters – Germanys 10year bond yield fell below the closely watched 1 level on Thursday as a slump in U.S. stocks a day earlier brought growth fears back into focus. pdivdivdiv classBodysc17zpet90 cdBBJodiv

　　pEuropean markets followed a selloff in U.S. equities and a sharp drop in Treasury yields on Wednesday, when retailer Target lost around a quarter of its stock market value, highlighting worries about the U.S. economy given surging prices. p

　　pGermanys 10year yield, the benchmark for the euro area, was down 8 bps to 0.93 by 1101 GMT.p

　　pThe twoyear yield, sensitive to interest rate expectations, was down 2 bps to 0.34.p

　　pThat flattened the twoyear10year segment of Germanys yield curve another 5 bps to 59 bps. p

　　pThe curve has flattened sharply this week, similar to moves in the U.S., in another sign of growth concerns. p

　　pInvestors scaled back their bets on rate hikes from the European Central Bank slightly, now expecting around 105 bps of hikes by yearend, compared to 110 bps on Wednesday. p

　　p“Its a catchup with the decline in equities in the U.S. that carried on postEuropean market close and the decline in Treasury yields that also carried on,” said Lyn GrahamTaylor, senior rates strategist at Rabobank. p

　　p“The interesting dynamic here that shows you the focus on the negative growth side is that you‘re actually seeing peripherals widen and some pricing out of the ECB hike expectations… It shows it’s a growthled move,” he added. p

　　pItalys 10year yield dropped 5 bps on the day on Thursday, widening the closely watched risk premium over German bonds to 196 bps, from 192 bps on Wednesday. p

　　pGrowth concerns also hit corporate bonds, sending Markits iTraxx Europe crossover CDS index, which effectively measures the cost of insuring against defaults on a basket of underlying highyield bonds, to the highest since May 2020 at 493 bps. p

　　pThe main index, which measures the cost of insuring exposure to investmentgrade corporate bonds, rose above 100 bps to the highest since April 2020.p

　　pElsewhere, the threemonth Euribor interbank borrowing rate has risen 5.5 basis points this week, the biggest weekly jump since the height of market panic over the COVID19 pandemic in April 2020, which had tightened financial conditions. p

　　pFixed at 0.348 on Thursday, the rate was at its highest since June 2020. p

　　p“A rate hike by the ECB at the July meeting is very likely… This will lift eurozone money market rates, which will rise, due to monetary policy, for the first time since April 2011,” said Luca Cazzulani, head of strategy research at UniCredit.p

　　pInvestors are now turning their focus to the European Central Banks April meeting minutes due at 1230 GMT. p

　　pWhile ECB communication has moved rapidly, with policymakers calling publicly for a positive policy rate this year and one not ruling out a 50 basispoint rate hike, the minutes may provide clues to how much the ECB might frontload rate hikes and any signs of a tool to contain market fragmentation, analysts said. p

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　　pp Reporting by Yoruk Bahceli Editing by Susan Fenton and Bernadette Baump

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