Euro Zone Government Bond Yields fall on Turkish Tumult


Euro zone government bond yields fell on Monday as a plunge in the Turkish lira boosted demand for safer assets.

President Tayyip Erdogan shocked markets by replacing Turkeys hawkish central bank governor with a critic of high interest rates, sparking a selloff in stocks, talk about possible capital controls and a dash for safer assets such as government debt.

The benchmark 10year German government bond yield dropped 2 basis points to 0.315.

Other core euro zone bond yields were down by a similar margin, peripheral euro zone yields by slightly less.

German bond yields also fell on Friday as concerns about the growth outlook in the euro area following a spike in COVID19 cases encouraged investors to bet that the European Central Bank will want to keep rates as low as possible.

New lockdowns have been declared or are expected to be announced shortly in several euro zone countries as governments try to reverse the rise in cases.

The past month has seen a dramatic selloff in the United States government bond market, sparked by worries about rising inflation as the U.S. economy rebounds.

But euro zone government bond markets, after initially selling off, too, have remained resilient, although German 10year bond yields at close to 0.3 are still nearly double early 2021 levels of around 0.6.

Going forward, we think that Bund outperformance relative to USTs U.S. Treasuries will continue, even if todays data on ECB weekly purchases do not indicate an acceleration….

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