Benchmark German debt yields climbed above zero for the first time since before the pandemic as investors braced for central banks to scale back monetary stimulus in the face of accelerating inflation.
The rate on 10-year bunds rises four basis points to 0.02%, crossing into positive territory for first time since May 2019. It comes as money markets bet the ECB will start raising rates in September from October previously. Traders expect that by the end of next year, the policy rate will no longer be negative.
It’s a milestone for European investors who have had to grapple with negative-yielding debt for years and a headwind for governments in the region that face the prospect of rising borrowing costs. The 10-year German yield has been submerged below zero since early 2019. It fell to as low as -0.91% around the height of coronavirus panic in March 2020, weighed down by the ECB’s bond purchases and liquidity injections.
But a surge in inflation as economies begin to recover is now taking its toll, with traders weighing the prospect of tighter central bank policy and ramping up bets on further bond declines.