On Thursday, stocks rose and yields fell on some of the euro zone’s battered low-rated bonds as investors put aside the political risks that have dominated markets this week. Investors are pondering the impact of Donald Trump’s election as US president, an unpredictable European electoral calendar and a potential winding-down of the central bank stimulus that has lifted risky assets globally. Bond investors are also pondering the impact of the European Central Bank eventually winding down its bond-buying stimulus scheme, which has driven down borrowing costs in the bloc for the past two years.
In Europe, rising oil prices and banking stocks pushed shares higher on a busy day of corporate earnings, while Asian stocks hit their highest in more than 18 months.
The pan-European STOXX 600 index rose 0.5 percent. French lender Societe Generale reported lower fourth-quarter net income that nonetheless beat analysts’ forecasts and its shares added almost 3 percent.
For the first time in two weeks, French 10-year government bond yields fell below 1 percent and yields on Spanish and Italian debt fell even more sharply. [GVD/EUR]
Concern over the impact of elections this year in countries including France and Germany saw investors sell bonds of lower-rated euro zone countries earlier this week. However, yields, which move inversely to prices, started falling late on Wednesday and fell further on Thursday.
“We’re in an environment where political risk is pretty much at the forefront and we’re not going to get any decisive news on that for a number of days,” said Orlando Green, European fixed income strategist at Credit Agricole.
“If the market has moved in your direction, you have to ask, will it stay there? There is an element of people closing out of their positions and pausing for thought.”
Yields on German 10-year bonds, seen as among the world’s safest assets, edged down 0.6 bps to 0.30 percent, meaning the French/German yield spread narrowed to 67 bps.
ECB President Mario Draghi and German Chancellor Angela Merkel, bidding for re-election later this year, meet on Thursday. A number of German officials have called on the ECB to unwind its monetary stimulus.
The euro fell 0.2 percent to $1.0682 after hitting a two-week low of $1.0640. The yen fell 0.4 percent to 112.35 per dollar, which earlier traded as strongly as 111.70. The dollar index, which measures the US dollar against other currencies, was fractionally higher on the day.