Omicron nervousness supports eurozone safe haven debt markets

LONDON, Dec.20 (Reuters) – The yield on the German 10-year Bund dipped to its lowest level in nearly two weeks on Monday, with demand for safe-haven assets as the surge in Omicron cases triggered tighter restrictions in Europe.

The Netherlands went into lockdown on Sunday and the possibility of more COVID-19 restrictions being imposed ahead of the Christmas and New Year’s holidays loomed in several European countries as the Omicron variant spreads rapidly. Read more

Yields on German 10-year bonds, considered one of the safest assets in the world, plunged to -0.402%, their lowest level since December 8. They flirted with their lowest levels since August.

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“An underlying security offer due to Omicron’s uncertainty ahead of the Christmas season has likely helped and looks set to stick,” said Rainer Guntermann, Commerzbank rate strategist.

Omicron nervousness weighs on global markets

Still, market movements and trading ranges were thin, with liquidity in bond markets declining in the last two weeks of the year.

Low liquidity exacerbated price swings in the Italian bond markets, with yields hovering between higher and lower on the day. Ten-year Italian bond yields last rose around 1 basis point to 0.93%.

Monday’s moves in European bond markets appeared relatively modest given the steeper declines in equity markets.

The pan-European STOXX 600 (.STOXX) fell 2.2%, falling to its lowest level in more than two weeks as investors fear tighter restrictions in the event of a pandemic would hurt prospects for economic growth.

Concerns about a hawkish turn at the European Central Bank may have tempered price gains in bond markets, analysts said.

ECB policymakers meeting last week called for greater recognition of inflation risks, but were pushed back by chief bank economist Philip Lane in an unusually robust debate, sources close to him told Reuters of the debate. Read more

“Obviously, on the hawkish side of the spectrum, there is a reasonable amount of dissent at the ECB, but that’s not very unusual of late,” said Lyn Graham-Taylor, senior rate strategist at Rabobank.

The new German government has chosen Joachim Nagel, a career central banker linked to the ruling Social Democratic Party, as the next head of the Bundesbank.

Nagel, a former member of the Bundesbank’s board of directors, will replace Jens Weidmann on January 1, who resigned five years earlier after a decade of unsuccessful opposition to the ECB’s aggressive stimulus policy of interest rates sub-zero and massive government bond purchases. Read more

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Reporting by Dhara Ranasinghe; Editing by Pravin Char

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