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Bond yields continue to move up

08/06/2015 11:58
The yields on ten-year bonds of regional countries rose last week due to the recent upward adjustment of the inflation estimate in the eurozone while the yield on the ten-year Cypriot bond recorded an increase as well.

The references of the European Central Bank President Mario Draghi to high volatility put pressure on the government bonds in the eurozone while rumors and reports for a possible Grexit exerted further upward pressure on yields.

The ten-year Cypriot bond (maturity 2020) is at 3.62% from 3.46% on Friday May 29 moving after a long time in the same direction as those of other regional countries. The Spanish ten-year bond amounts to 2.21 % from 1.83% a week ago and that of Ireland to 1.67% from 1.17%.

Portugal’s bond rose to 2.94% from 2.55% and Italy’s to 2.23% from 1.85%.

KPMG partner Tasos Yiasemides told StockWatch that the blocking in negotiations between Greece and the institutions and the Grexit scenarios strengthen the climate of uncertainty and lead to higher yields.

“The yield on the Cypriot bonds shows a slight increase, follows the upward trend of other countries, as, since it is a member of the eurozone, it is affected by what is happening this period”.

Since late 2014, early 2015 there was an increase in bond prices due to increased demand as a result of expectations for the implementation of the European Central Bank's quantitative easing program.

“The implementation of the program in early March led to a further decline in yields, however, the markets absorb this and investors move to bond sales. The abnormally low yields were characterized by many as a distortion and led to a reassessment of investment policies”, Mr. Yiasemides said.

Moreover, he added, the QE program was implemented with the main aim to strengthen inflation in the eurozone. “The latest statistics, which indicate a reversal of the deflationary trends in the eurozone and the increase in oil prices lead investors to assess that inflation in the euro area may recover sooner than previously expected”, he noted.

According to head of the portfolio analysis of Argus Stockbrokers Savvas Theophilou, bond yields in Europe, including Cyprus, were recently on the rise as investors reassess the latest encouraging results of inflation and growth in the eurozone, as well as the ECB's revised estimates for inflation.

“The yield of the Greek ten-year bond has declined slightly but remains at prohibitive levels as investors await the details of a possible agreement between Greece and lenders”, Mr. Theophilou said.

The ten-year bond of Greece amounts to 10.66% from 11.06% on Friday, May 29.