Trump strife sends euro zone bonds yields tumbling – Nasdaq

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* German Bund yields fall to 2-week lows
    * U.S. political turmoil weighs on global markets
    * Trump campaign had 18 undisclosed contacts with Russia -
    * Euro zone periphery govt bond yields

 (Writes through)
    By Dhara RanasingheLONDON, May 18 (Reuters) - Government bond yields in the
euro zone and the U.S. tumbled on Thursday as uncertainty over
U.S. President Donald Trump's future boosted demand for
safe-haven bonds.
    Reports that Trump may have had tried to interfere with a
federal investigation and that he discussed sensitive security
information with Russia have rattled markets in recent days, and
a report on Thursday that his aides had numerous undisclosed
contacts with Russian officials kept tensions highs.
    The allegations surrounding Trump have thrown doubt over the
future of the pro-growth policies he has promised and also
raised the possibility that he may have to leave the White House
    "To some extent, people were pinning their hopes on a global
reflation trade getting a boost from fiscal stimulus in the
States," said Chris Scicluna, head of economic research at Daiwa
Capital Markets.
    "The more Trump gets bogged down in the impeachment debate
and the issues surrounding that, it reduces the likelihood that
you get anything meaningful in terms of fiscal stimulus --
that's the key factor here."
    Jittery investors opted for the safety of fixed income,
sending the yield on Germany's benchmark 10-year government bond
of Bund down 6 basis points to a two-week low of 0.32 percent
    U.S. 10-year Treasury yields fell to 2.181 percent
<US10YT=RR>, their lowest level in almost a month, and keeping
the gap with Bund yields close to its tightest in six months.
    World stocks fell, while other safe-have assets such as the
Swiss franc rallied.
    U.S. political uncertainty has prompted investors to scale
back expectations for a rise in U.S. interest rates next month.
    In the euro zone, expectations for future inflation
<EUIL5YF5Y=R> and the scope for a rate rise from the European
Central Bank also fell, reflecting some unease that the
political turmoil in Washington could hurt the global economy.
    Money markets price in around a 45 percent chance of an ECB
rate hike in early 2018, down from more than 50 percent earlier
this week. <ECBWATCH>
    Comments from ECB officials had a muted impact on a bond
market fixated for now on U.S. political developments.
    The ECB should not wait too long before paring back stimulus
once it is convinced that inflation has recovered, and it could
in theory raise rates early if necessary, ECB board member
Benoit Coeure said. [nL8N1IJ4C1]
    Minutes from the ECB's April meeting are released later in
the day, while ECB chief Mario Draghi is expected to speak.
    "U.S. politics is still the main in show in town," said
Rabobank fixed income strategist Lyn Graham-Taylor.
     Most euro zone bond yields were 2-5 bps lower, extending
recent falls on the back of fading political risks in the euro
area and brighter economic data in the bloc.
    Institutional investors snapped up 1 billion euros of
Italy's new "BTP Italia" bond, maturing in May 2023, in the
first 10 minutes of trading on Thursday. That followed strong
demand in French and German long-dated bond auctions this week.
    Data from Japan'sMinistry of Finance released on Thursday
showed Japanese investors' appetite for foreign bonds picked up
in the latest week as they bought the most in 10 months,
reassured by the outcome of France's presidential election.
    For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=

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 (Reporting by Dhara Ranasinghe, editing by Pritha Sarkar)
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