The expectation of a small interest rate hike from the ECB pushed up bonds

A positive reaction is observed today on eurozone bond markets. The prices of most securities are on the rise (as a result of which their yields fall) as investors estimate that the ECB on Thursday will not proceed with a large increase in its interest rates. Until yesterday in the futures market the probability of an interest rate increase of 0.75% was around 90%, while today the probability has been reduced to 65%. Additionally, markets are discounting another rate hike of at least 0.5% in October.

The approach that will ultimately be followed by ECB on the interest rate front it is proving to act as a ‘barometer’ in the bond market.

In HDAT, transactions of 70 million euros were recorded, of which 62 million euros related to purchase orders. The yield on the 10-year bond fell to 4.19% from 4.26% yesterday versus 1.60% for the German counterpart, bringing the spread to 2.66% from 2.69% yesterday.

In the foreign exchange market, the euro fell against the dollar with the European currency trading at $0.9901 in the early afternoon from $0.9926 when the market opened.

The indicative price for the euro/dollar exchange rate announced by the ECB was set at $0.0928.

RES-EMP

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