Government bond yields in the Eurozone dropped on Monday as investors worried about the negative economic consequences.
Government bond yields in the Eurozone dropped on Monday as investors worried about the adverse economic effects on the economy of the Russian attack on Ukraine in assessing the European Central Bank’s decision-making on monetary policy.
The decision of Western allies to exclude “selected” Russian banks from the SWIFT payments system could inflict an economic disaster and create a lot of pain for their banks and companies.
Vladimir Putin, President Vladimir Putin put Russia’s nuclear defense system on high alert on Sunday in the face of a torrent of Western revenge in his war on Ukraine.
Germany’s 10-year bond yield is the benchmark of the entire bloc, fell 5.5 basis points down to 0.163 percent.
“As this targeted SWIFT ban leaves EU states with the possibility of settling commodity imports electronically, and markets already discounted the possibility of a shock to energy prices on Thursday, and the possibility of a Russian tit-for-tat may be required to push markets to price the possibility of an inflationary recession that is imminent,” Commerzbank analysts said in a note to customers.
Confident analysts anticipate that the Central Bank will defer the end of its monetary stimulus for pandemics unless a diplomatic solution for this Ukraine crisis is on the horizon.
“The turmoil in Ukraine is a major factor in the increase in “unhealthy” inflation, and puts the ECB in a tough spot,” Citi analysts said in an article on the research.
“While an (interest rate) increase might seem less likely at present, the rise in inflation will keep normalization on the table,” they added.
The shorter maturities of Germany are outperforming in the two-year and the 5-year yield, respectively, dropping 8.5 and 9 basis points.
“Market anxieties could lead central bankers to adopt a more cautious tone,” ING analysts said.
“Even with rising energy costs and rising oil prices, we may find front-end rates suggesting that a more cautious tightening course but bonds with a long maturity should remain the primary beneficiary of the flow of safe-haven funds,” they added.