Eurozone bond yields fell Thursday as fears of a global recession escalated after a second quarter of negative growth in the US, looking past German inflation figures showing an unexpected rise in harmonized consumer prices. The bloc’s largest economy received its second-quarter GDP figures today, raising fears of a knock-on recession for the EU.
According to the Federal Bureau of Statistics, gross domestic product stagnated in the second quarter of the current year compared to the previous quarter.
Gross domestic product remained unchanged from the previous quarter between April and June, the Federal Statistical Office (Destatis) announced on Friday. Economists had expected growth of 0.1 percent.
At the start of the year, however, the economy performed better than expected: Destatis revised the plus of GDP for the first quarter upwards to 0.8 percent from the 0.2 percent initially mentioned.
In the spring, the economy was mainly supported by private and government consumption spending, while net exports dampened economic growth. “The difficult global economic conditions with the ongoing Corona pandemic, disrupted supply chains, rising prices and the war in Ukraine are clearly reflected in economic development,” explained Wiesbaden-based statisticians.
Federal Economy Minister Robert Habeck recently spoke of the “greatest energy crisis in Germany” – caused by its heavy reliance on Russia. The International Monetary Fund (IMF) expects the German economy to grow only a relatively meager 1.2 percent this year.
On Thursday, official data from Germany showed that consumer prices, harmonized to make them comparable to inflation data from other countries of the European Union (HICP), are up 8.5 percent year-on-year, after rising 8.5%. 2 percent in June.
Peter McCallum, interest rate strategist at Mizuho, said: “A lot of that German data surprise versus economists’ consensus should have already been factored in by the market.
“With that out of the way, European rates traded more last night on a subdued Fed and, more importantly, very poor US growth rates.”
The German two-year yield, which is sensitive to changes in interest rates, fell by more than 15 basis points (bps) to its lowest level since 17 May.
Earlier in the day, the spread had briefly reached 257 bps, the highest level since April 2020 and above the level that prompted the European Central Bank to hold an ad hoc meeting in June to discuss tensions in euro-zone bond markets.
“Investors remain cautious given that we are close to the parliamentary elections in September,” said Daniel Lenz, interest rate strategist at DZ Bank.
“Markets are more in favor of predictable governments and governments that follow EU rules.”
Italian bonds are under pressure following the collapse of Mario Draghi’s government last week.
Rating agency S&P Global changed the outlook for the Italian government bond from positive to a surprising move on Tuesday.
Additional reporting by Monika Pallenberg