As per the slow recovery signs of the European economy, the bonds of European nations are being held back due to the demands of extra yield investors. Instead, an increased interest level in the German bonds is being shown by investors because of the degree of safe income involved in them.
Last week’s economic growth in EU market was only 0.1%, which is a significantly low rate of recovery. As a result, the yield on the benchmark Ten-Year bonds, fell rapidly. Hence, a chain reaction occurred that was constituent over Europe’s slow rate of manufacturing in the construction industry and a decreased demand for new houses. Therefore, as an obvious outcome, the yield spread widened over German notes.
According to the current analysis on financial situation in Europe, the yield on 10-year bonds dropped down to 2.64%, after earlier sliding down to a 2.65% on June 16th. Due to the crisis situation in the European markets, it is being feared that the worst financial days are yet to come.
On the other hand, the Greek government witnessed a gradual decrease in their yield bond rates. As an inevitable result, the extra yield investors switched their demands towards the German bonds, giving room to an increased 775 basis points (as compared to yesterday’s 711 basis points).
According to Bild Zeitung – a German newspaper, Germany is in need of a financial aid that is worth 60 billion Euros, which is 20 billion less than the original estimated amount (80 billion Euros). However, Alan James – a fixed income analyst at Barclays in London, said that the most recent fiscal data in Germany is depicting lower levels of overall issuance rates of bonds and securities.
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