European Bonds Yields Reach 12-year Highs Amid Expectations of Higher Rates

Bridgette Randall
25 Sep, 2023
Frankfurt

European markets extended losses and investors debated future rate path and looming global economic slowdown. 

Benchmark indexes in Frankfurt, Paris and London extended previous weeks losses after the yields on European bonds traded at one-decade high. 

German bond yields jumped to the level last seen in 2011 and investors expected higher rates to persist as central bankers struggle with elevated inflation.

The euro edged lower against the dollar after European Central Bank Governing Council member Francois Villeroy de Galhau supported the case for higher interest rates to stay longer. 

ECB President Christine Lagarde is scheduled to testify before the European Commission's Committee on Economic and Monetary Affairs later in the day, and investors looking for clues to the innerworkings of the economy after recently the central bank lifted rates 10th time in a row. 

Market sentiment has been steadily shifting away from stocks as bond yields advance, crude oil hover at this year's high, inflation stays above the target range and euro drifts lower in the last two months. 

 

Europe Indexes & Yields

The DAX index decreased 0.7% to 15,455.77, the CAC-40 index fell 0.5% to 7,147.40 and the FTSE 100 index fell 0.6% to 7,640.31. 

The yield on 10-year German bonds increased to 2.82%, French bonds traded higher to 3.75%, the UK gilts edged up to 4.31% and Italian bonds rose to 4.66%.

The euro edged lower to a three-month low to $1.064, the British pound to $1.223 and the U.S. dollar fetched 90.94 Swiss cents.

Natural gas prices continued to climb higher for the fifth day in a row amid supply worries, despite elevated inventories in the region. 

Norway's Gassco extended production shutdown at its Skarv field by a week to October 8. 

Investors have been bidding up prices on the production disruptions worries by extreme weather events and prolonged outages at the U.S. LNG shipment terminals amid ongoing Russia's invasion of Ukraine. 

Brent crude increased $0.70 to $93.31 a barrel and the Dutch TTF natural gas edged higher €2.96 to €42.73 per MWh.

 

Europe Stock Movers 

China-exposed luxury stocks in Paris declined between 2% and 3% and the UK-based mining companies fell between 1% and 2% on the ongoing China property market woes. 

China's largest property company and the most indebted property group in the world said it is not able to issue more debt because of ongoing investigation in its domestic subsidiary. 

Swedish property SBB AB jumped 26% to kr kr3.79 after the company agreed to handover control of a portfolio of school buildings to Canada-based Brookfield Asset Management Ltd. 

Entain Plc plunged 11.5% to 931.0 pence after the online gambling platform issued revenue alert for the third quarter and full-year. 

CRH added 2.2% to 4,459.0 pence after the building material company announced its plan to repurchase 17.7 million shares. 

Aviva Plc declined 1.3% to 393 pence after the UK-based insurance group agreed to acquire protection business in the UK owned by AIG.