Eurozone Bond Yields Rise, Tracking Treasurys; Focus on Midterms — Market Talk

What happened

Eurozone government bond yields rose in opening trade, following U.S. Treasury yields higher as oil prices rebounded slightly. With no key eurozone economic data and only Austrian and German bond auctions, investor focus was on U.S. midterm elections, where odds of a Democratic sweep increased.

Confirmed

Global impact / market context

Higher bond yields raise the interest cost governments pay on borrowed money, which can crowd out spending on other priorities. A Democratic sweep could change U.S. fiscal policy, and Commerzbank's Christoph Rieger says Democratic control of Congress should, on balance, support Treasury prices.

Analyst inference

Eurozone yields often move with U.S. Treasury yields because global bond investors compare returns across markets. Belgium's 10-year yield rose more than Germany's after budget talks collapsed, which means investors demanded extra compensation to hold Belgian debt compared with German debt.

Analyst inference

What to watch

1. U.S. midterm election results are the main focus, with Commerzbank's Christoph Rieger noting that Democratic control of Congress should, on balance, be positive for Treasurys, which means supportive for Treasury prices. Confirmed
2. Watch whether Democratic control of Congress, if confirmed, leads to changes in U.S. government spending or tax plans, since those choices affect how much money the government borrows. Proposed
3. Watch Belgium's 10-year bond yield relative to Germany's after budget talks collapsed, since a wider gap would signal investors charging more to lend to Belgium than to Germany. Analyst inference

Evidence

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