UPDATE 2-Euro zone bonds log worst day in six months

Market trading boards are seen at the Australian Securities Exchange in Sydney, Friday, February 9, 2018. ( AAP Image/Ben Rushton) NO ARCHIVING

* Italian, German 10-year yields see biggest daily jump since Feb

* German 30-year yields see biggest daily jump since Nov

* De Guindos says ECB could raise macroeconomic projections

* (Rewrites throughout, adds details, comments and updates prices)

Aug 25 (Reuters) – Euro zone borrowing costs rose sharply on Wednesday, with German and Italian yields logging their biggest daily rises in six months as investors dumped bonds before a crucial speech by Fed boss Jerome Powell at the Jackson Hole summit.

Yields had risen earlier after two European Central Bank officials sounded upbeat about the euro zone economic outlook; Vice President Luis de Guindos said macroeconomic projections for the bloc could be revised up in September after recent solid activity indicators.

But the selloff gathered momentum after U.S. markets opened and Treasury bond prices fell.

Analysts said a range of factors were in play. Peter McCallum, rates strategist at Mizuho, attributed it to “people reducing risk in rates markets… before Jackson Hole.”

The selling took 10-year German yields 6 basis points higher to -0.42% by close of trade, the highest in a month. It was the biggest daily jump since February, when reflation bets were sending bond yields spiking.

The German 30-year yield turned positive for the first time in nearly two weeks and recorded its biggest daily rise since last November.

Ten-year U.S. and British yields up 5 bps and 6 bps respectively .

“What’s probably also caused the selloff to extend is that we’ve gone through some stop levels,” Mizuho’s McCallum said, adding that certain levels in Bund futures were likely hit, triggering stop-loss orders — to buy or sell when a certain level is breached.

Powell is due to speak this Friday at the Federal Reserve’s annual Jackson Hole summit and many expect he will outline a time table for tapering stimulus. He has so far held a relatively dovish line, in contrast with some regional Fed officials who have called for tapering to commence soon.

“There is a bit of repricing of the Fed, futures are wavering between pricing the first rate hike in December 2022 or Q1 2023 and I think the market is feeling emboldened to think this will be a Q2 2022 story,” said Thomas Costerg, senior economist at Pictet Wealth Management.

The selloff extended across Europe, lifting Italy’s 10-year government bond yield 10 bps to 0.67%, the biggest daily jump since late-February. Italy’s yield spread over its German equivalent rose to 108 bps, the highest since July 30.

Earlier in the day, ECB chief economist Philip Lane added to de Guindos’ comments, predicting the Delta variant of COVID-19 would have only a limited impact on the euro zone economy.

Antoine Bouvet, senior rates strategist at ING said de Guindos’s commentary was “quite hawkish” compared to earlier communication by the bank.

Bond markets focused on those comments rather than the below-forecast release of Germany’s Ifo business climate index .

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