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Germany’s 10-year Bund yield turns positive for first time since 2019

Germany’s 10-year bond yield, a benchmark for borrowing costs across the eurozone, swung above zero for the first time since 2019 as investors bet central banks will need to withdraw stimulus measures to slow inflation.

The yield on the 10-year Bund rose as high as 0.009 per cent on Wednesday, the highest level since May 2019, reflecting a drop in the price of the debt. In mid-December, the Bund yield had registered about minus 0.4 per cent.

The global rise in yields, led by the US, reflects investor angst that policymakers will need to act quickly to cool intense price growth that has taken hold across big economies.

Eurozone inflation climbed to 5 per cent in December, setting a record since the single currency was created more than two decades ago, and raising doubts over how quickly price pressures will ease this year.

At its December meeting, the European Central Bank announced it would continue its asset purchases after its emergency bond-buying programme runs out in March, but at a slower rate than investors had expected.

That, in combination with signs that the US is edging towards tighter policy, has pushed German bond yields higher.

Line chart of 10-year Bund yield (%) showing German borrowing costs rise above zero

Across the Atlantic, the two-year US government bond yield, which is considered to be particularly sensitive to changes in expectations for monetary policy, hit 1 per cent on Tuesday for the first time since February 2020 as markets priced in four rate rises by the Federal Reserve this year.

The sell-off in government debt also pointed to investor confidence that the Omicron coronavirus variant will fail to derail a global economic recovery, potentially giving central banks the opportunity to dial back purchases and raise interest rates.

More to follow . . .

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