European Bond Yields Dropped to 6-month Lows as Rate-cut Expectations Dominated Market Sentiment

Bridgette Randall
06 Dec, 2023
Frankfurt

European markets advanced and extended the previous week's gain, and bond yields dropped to six-month lows.

Benchmark indexes in Frankfurt, Paris, and London extended solid gains from the previous session after market sentiment shifted in favor of rate cuts.

German bond yields dropped below 2.3%, and Italian bonds hovered at 4% on expectations that the European Central Bank is likely to pivot from rate hikes to rate cuts earlier than expected.

Last month, the European Central Bank president Christine Lagarde lowered rate-cut expectations and said talks of rate cuts are "premature."

Despite the central bank's warning, investors held on to the belief that rates are likely to begin to decline in the second quarter of 2024, following the steady decline in energy prices over the last six months.

  

Europe Indexes and Yields

The DAX index increased 0.06% to 16,543.33, the CAC-40 index rose 0.1% to 7,393.55, and the FTSE 100 index advanced 0.3% to 7,513.13.

The yield on 10-year German bonds decreased to 2.25%; French bonds traded lower to 2.81%; the UK gilts declined to 4.05%; and Italian bonds inched lower to 4.00%.

The euro traded lower to $1.079, the British pound inched lower to $1.259, and the U.S. dollar eased to 87.52 Swiss cents.

Brent crude decreased $0.34 to $76.83 a barrel, and the Dutch TTF natural gas increased by €1.11 to €39.88 per MWh.

 

Europe Stock Movers

TUI AG soared 10.5% to €6.57 after the tour operator reported operating profit that more than doubled in 2023.

Operating profit in the fiscal year 2023 ending in September surged 139% to €977 million from €568 million a year ago.

Revenue in the fourth quarter increased 11% to €8.5 billion, and operating profit jumped by €164 million to €1.203 billion.

For the full year 2023, the company swung to a profit of €306 million from a loss of €277 million a year ago.

The tour operator also lowered its debt to €1.3 billion from €3.4 billion, following strong operating cash flow and a successful €1.8 billion rights offering in April.

The tour operator forecasted revenue in fiscal 2024 to increase by "at least 10%" and underlying operating profit by "at least 25%."

British American Tobacco dropped 7.8% to 2,291.50 pence after the company reiterated its full-year 2023 earnings per share outlook.

The maker of cigarette and smokeless tobacco products generates strong cash flow, and the company said it is making progress in lowering its debt.

"BAT is a highly cash-generative business, and we expect to deliver close to 100% operating cash flow conversion in 2023.

We are making progress towards reaching the middle of our guided 2-3x adjusted net debt/adjusted EBITDA leverage range and expect to be around 2.7x by year end," said the company in an update to investors.

The company said it plans to generate more than 50% of its revenue from non-combustibles by 2035.

Mining companies were among the leading gainers after metal prices advanced in London trading.

Glencore increased 1.8% to 446.20 pence, Antofagasta gained 1.5% to 1,439.50 pence, and Anglo American advanced 2.1% to 2,199.50 pence.