October 19, 2020: Euro zone government bond yields hovered near seven-month lows on Monday ahead of a raft of speeches from European Central Bank policymakers, with investors keeping an eye out for clues on monetary policy easing before the end of the year.
ECB President Christine Lagarde is due to speak at the 16th Congress of the French Regions at 12.40 GMT, and is one of four ECB board members scheduled to speak later on Monday.
With a second wave of COVID-19 infections sweeping Europe and new restrictions introduced by a number of governments, bets are that the region's top policymakers will strike a dovish note.
“Speculation has been building that the ECB will be easing policy before the end of the year, so if Lagarde et al don't give hints to the contrary, bond investors' expectations will look increasingly correct,” DZ Bank analysts said in a note.
Germany's benchmark 10-year government bond yields were at -0.61% on Monday, more than 10 bps below the current ECB deposit rate, suggesting investors are expecting further easing.
Long term euro zone inflation expectations also remain muted, with a key gauge – the five-year, five-year forward swap – hovering near a three-month low at 1.1213%.
Euro zone yields are 1-3 basis points higher on the day, but only after one of the biggest weekly falls since June last week. Italian yields, for example, are up 2.5 bps on the day at 0.68%, but only after falling 6 bps last week, hitting a new record low in the process.
Analysts attributed the slight increase in yields on Monday to hopes for a U.S. fiscal package and expectations of a coronavirus vaccine by the end of this year, which lifted Asian stocks towards 2-1/2 year highs in early trade.
Corporate earnings due this week could also provide some optimism, said Mizuho's head of rates Peter Chatwell, adding that October's purchasing managers' index (PMI) data due later in the week should give an indication of the impact of the second wave of infections.
In terms of supply, a highly-anticipated round of bond issuance from the European Union could appear as early as this week, analysts believe.