Sept 20 (Reuters) - Euro zone bond yields fell on Monday as
weaker commodity prices, default worries about China's
Evergrande and caution before this week's U.S. Federal Reserve
meeting pressured stocks and boosted safe-haven government debt
Germany's 10-year Bund yield, the benchmark for the euro
zone, fell around 4 basis points to -0.32%, notching
up one of its biggest falls in recent months.
Bond yields move inversely with prices. And the move down in
Bund yields pushed them well below a 10-week high hit on Friday
at -0.265% after a report suggested the European Central Bank
expects to hit its inflation target by 2025.
Other 10-year euro area bond yields were 1-4 bps lower.
"It's better to be invested in sovereigns than equities and
other riskier assets, that's what we're seeing today," said
Daniel Lenz, rates strategist at DZ Bank.
Referring to Chinese property developer Evergrande, he
added: "Nobody knows really whether this is a crisis in China
which is being solved quickly or the beginning of something
Investors are also concerned about what the stress at
Evergrande will mean for Chinas economy and its growth
prospects, Lenz said.
After Friday's ECB-driven sell-off, the risk-off tone in
stocks and concern that soaring gas prices could hurt economic
growth took over.
ECB board member Isabel Schnabel said on Monday that she
welcomed the recent spike in inflation, adding that the volume
of ECB bond buying is becoming less important as the economic
There was little reaction in Portuguese and Greek bonds to
rating upgrades from Moody's and DBRS respectively.
DBRS upgraded Greece to BB, two notches below
investment-grade, with a positive outlook.
"The upgrade for Greece together with a positive outlook
from DBRS should further fuel expectations for a return to
investment-grade next year," said Rainer Guntermann, rates
strategist at Commerzbank.
The ECB made an exception to include junk-rated Greek bonds
in its pandemic emergency bond purchases last year. But once
those expire next year eligibility for the ECB's conventional
bond purchases requires at least one investment-grade rating.
That may take at least until autumn next year as Greece
would need to secure a two-notch upgrade from one of three
rating agencies to comply, Guntermann said.
Political uncertainty in Germany ahead of Sunday's election,
where the Social Democrats are leading opinion polls that point
to a highly fragmented outcome, was also in focus for euro zone
After a hefty pace of issuance last week, debt supply will
slow this week. Around 10.5 billion euros of euro area
government bond issuance is expected, the lowest level in six
weeks, according to Commerzbank.
(Additional reporting by Dhara Ranasinghe; editing by Timothy
Heritage and Gareth Jones)