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The intensified rally of Spanish and other eurozone bonds brought on by the European Central Bank’s revelation of unorthodox measures last week looks set to slow down as investors started selling for profits.
Following the renewed commitment of the ECB to pull up struggling members of the eurozone, the surge in number of investors buying 10 year Spanish bonds peaked on Monday when yields fell below those of the US Treasury, a development not seen in four years, and moved the market direction towards selling. As a result, its 10 year yields have gone back up to 2.64% on Tuesday coming from Monday’s all time low of 2.58%, surpassing the 2.637% of a Treasury 10 year note from the US.
The return of bonds from Spain have so far been at 10.2% for the year through Monday while its US counterpart’s fell way below at 2.2%.
The same rising trend was present in the debt counterparts of other countries in the monetary union. Yields for Italian and Irish 10 year bonds increased to 2.804% and 2.423%, respectively. The region’s benchmark in German government bonds also soared to 1.358%.
Whether the debt market will continue going on this direction, however, is a subject for debate. While some believe that the correction was bound to happen after the European market’s furious rally, there are others who consider the price pullback a minor incident compared to the several years’ worth of pent up demand for bonds especially when taking in to consideration the ECB’s readiness for implementing additional measures this year if needed.
The rallies of European bonds were originally spurred in 2012 by the announcement of the ECB’s intent to keep the eurozone together even as several peripheral countries were undergoing a severe debt crisis.
