German bond yields rise after dovish Fed minutes prompt move to stocks
(Updates prices)
By Lisa Barrington
LONDON, Oct 9 (Reuters) - German Bund yields rose on Friday, with investors preferring equities after minutes of the most recent Federal Reserve meeting suggested the central bank was in no hurry to raise U.S. interest rates.
Global stocks rose, reflecting increased risk appetite, and commodity and energy prices rebounded, contributing to an increase in yields across the euro zone.
The minutes showed the Fed had thought the U.S. economy was close to warranting a rate hike, but decided it was prudent to wait for evidence that a global economic slowdown was not knocking the United States off course.
Minutes from the European Central Bank's Sept. 2-3 policy meeting, also issued on Thursday, showed policymakers were warned of risks coming from emerging markets. Expectations that the ECB will extend the bank's trillion-euro stimulus programme have grown in the past month.
Loose monetary policy usually helps bonds, but benchmark Bund yields have broken below 0.50 percent only once since June - for a few hours last week.
"We have seen quite often in the past that as soon as Bunds reach around 50 basis points, more than a few investors say, 'This level is not sustainable - we are not going to buy here'," DZ Bank rate strategist Christian Lenk said.
Many in the bond market are wary after making losses on a rapid bounce in Bund yields from near-zero levels in May, a move that coincided with a brief uptick in inflation.
When yields are so low, an increase of just a few basis points can cause major losses for investors as they lose the protection of coupon payments, which are close to zero as well.
As a result, instead of joining the rally in shares -- as they have often done in recent years when reacting to signs of more central bank stimulus -- bonds have been ditched lately during periods of higher risk appetite.
German 10-year Bund yields were up 2.5 basis points at 0.61 percent, around a 10 basis point rise in a week in which below-forecast economic data strengthened the case for further monetary policy measures.
The upside for bond yields remains limited, however, given the risks stemming from a slowdown in emerging markets and potentially looser monetary policy, analysts said.
"As the ECB minutes yesterday reminded us, the central bank remains tilted towards further easing measures, which leaves bond yields with more downside potential," said Jan von Gerich, chief strategist at Nordea.
Germany, the Netherlands, France, Italy and Spain are scheduled to issue bonds in the coming week.
(Reporting by Marius Zaharia; Editing by Larry King)
