German yields slide below zero with ECB rate-hike bets on ice

Bloomberg

German bonds surged on Tuesday, sending the benchmark yield below zero for the first time in a month as rates traders bet the European Central Bank will put off raising interest rates until next year.
The repricing comes as investors come to terms with the fallout from Russia’s invasion of Ukraine and the risks it poses to the growth outlook in the region.
German 10-year yields slid as much 14 basis points to minus 0.01%, with money market traders betting the ECB will deliver its first quarter-point increase in January 2023. As recently as the middle of last month, they were wagering on two such increases in September and December, bringing the deposit rate to zero for the first time since 2014.
Investors have been preparing for policy makers to start winding down stimulus in the face of record inflation, a task now complicated by the economic impacts of war and sanctions. The price of oil and gas surged to multi-year highs amid the turmoil, potentially curbing consumption.
The ECB could find the conflict to “be potentially damaging to the Eurozone economy,” said Viraj Patel, global macro strategist at Vanda Research in an interview on Bloomberg Television. “Being dovish on the ECB —playing that wait-and-see game around rate hikes —for us makes much sense.”
Bonds rallied across Europe as traders adjusted their expectations. The yield on 10-year Italian debt — among the most sensitive to prospect of looser policy— fell as much as 20 basis points to 1.51%. UK peers tumbled 16 basis points to 1.25%, while the rate on equivalent US bonds slid 10 basis points to 1.72%.
The paring back of tightening bets follows recent dovish comments from ECB policy makers.