Bond yields in the eurozone decreased

Government bond yields in the eurozone decreased on Monday as investor attention switched to the United States in anticipation of Fed Chair Jerome Powell’s hearing on Tuesday. Officials from the Fed last week displayed skepticism over the recent hotter-than-expected statistics and if it indicated the need for higher interest rates.

Raphael Bostic, president of the Atlanta Federal Reserve, advised the central bank to continue “steady” quarter-point rate rises for the time being in order to reduce economic risks. China, however, announced a lower growth goal for this year, raising concerns about potential negative effects on the EU economy and sparking hopes for a potential reduction in the rate of ECB tightening.

The yield on German 10-year bonds decreased by 4.5 basis points (bps) to 2.676%. Last week, it reached 2.77%, the highest level since July 2011. Nonetheless, forwards on the short-term euro rate set by the European Central Bank still reached a peak in November 2023 at about 3.9%, suggesting that the depo rate would reach 4% by year’s end.

The anticipated rate increase of 50 basis points in March, according to ECB President Christine Lagarde, is now “very, very likely.” Still, she also issued a warning that underlying inflation may continue to rise uncomfortably in the near future.

In response to a query about the ECB rising rates to 4% or higher, Lagarde noted, “The ECB doesn’t have a ceiling, but an inflation target of 2%.” A few days before the FOMC blackout period beginning March 11, Powell will make his remarks.

More about Eurozone economy

Economists anticipate Powell to highlight the possibility that the rate peak may need to be higher than the 5.125% officials had suggested in December if economic indicators continue to surprise to the upside. The differential between the 10-year rates in Italy and Germany narrowed to 177 bps as the Italian 10-year yield IT10Y decreased 7.5 basis points to 4.465%.

This Monday, the ECB began removing the bonds from its balance sheet at a rate of, on average, 15 billion euros each month. Although traders and bankers are sure the ECB will unwind its massive bond holdings smoothly, the long-term impact of its “quantitative tightening” is a significant uncertainty due to the strong investor inflows into bond markets this year.

Romania’s January retail sales increased 5.3% year over year

The national statistical office reported on Monday that retail sales in Romania increased by 5.3% year over year in January after being seasonally and working day adjusted. According to a statement from the statistical office, INS, sales of food, beverages, and tobacco rose by an annual 4.8% in January, while sales of non-food items jumped by 8.3% and fuel sales decreased by 0.5%.

Unadjusted data show that retail sales increased 5.7% year over year in January. The adjusted retail turnover volume in January increased by 0.7% over the previous month as a result of greater sales of non-food items and food, beverages, and tobacco (+3.2% and +3.0%, respectively). Automotive fuel sales decreased by 8.3% month over month in specialty retailers. The trade-in motor vehicles and motorbikes is not included in the statistics.

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