Bund yields track oil lower, shrug off German vote results
Euro area benchmark Bund yields dropped on Monday, tracking moves in oil prices and showing a muted reaction to gains by the far-right Alternative for Germany (AfD) and a far-left party in regional elections. German Chancellor Friedrich Merz vowed to accelerate reforms to move Germany forward.
Markets will closely watch Merz push to continue his policy agenda French and Italian bonds rebound after Monday's selloff Traders fully price in one ECB hike and 50% chance of second move by December By Stefano Rebaudo Sept 21 (Reuters) — Euro area benchmark Bund yields dropped on Monday, tracking moves in oil prices and showing a muted reaction to gains by the far-right Alternative for Germany (AfD) and a far-left party in regional elections.
German Chancellor Friedrich Merz vowed to accelerate reforms to move Germany forward after the far-left Left Party won the Berlin state election and the AfD was projected to win the most votes in the state of Mecklenburg-Western Pomerania. Oil prices slid to their lowest in more than a week on Monday on hopes diplomacy in the Iran war will get a chance this week amid a UN meet, and as investors eyed a partial recovery in shipments from Saudi Arabia despite ongoing attacks by Yemen's Houthis.
The AfD's growing popularity could have pressured Bunds if increased frictions within the federal government following weak CDU results hindered the passage of reforms, clouding Germany's fiscal and economic outlook, analysts said. However, market participants still expect the current government to continue its policy agenda. "After a potentially contentious debate, the coalition will likely soften some of the envisaged entitlement cuts, for instance with a long transition period for the end of early retirement," Holger Schmieding, chief economist at Berenberg, said. 48%, virtually wiping out Friday's rise.
"Our base case remains that Merz survives, but the leadership meetings this week will be closely watched by markets looking for signs of further political instability at the core of Europe," Evelyne Gomez-Liechti, multi-asset strategist at Mizuho, said. French And Italian Bonds Rebound French and Italian government bonds rebounded after Monday's selloff, which was triggered by expectations of a steeper path for policy rates, a prospect that would increase borrowing costs for the euro area's heavily indebted countries. 37%. 5 bps and 10 bps, respectively, on Friday.
7% in 2027, the finance ministry said on Saturday. 1% in 2025. 87% by end-2026, implying one hike and about a 50% chance of a second move. com)