Pause over, euro zone bond yields head back to lows

LONDON: Government bond yields in the euro area headed back to recent record or multi-year lows on Friday amid growing uncertainty in the Middle East after attacks on two oil tankers and speculation about monetary easing by major central banks.

A slide in bond yields had paused this week after re-pricing by investors of the outlook for the world economy and monetary policy by major central banks.

But yields on the bloc's higher-rated bonds were once again heading lower as the week drew to a close.

Fresh uncertainties have hurt risk appetite and boosted demand for safe-haven assets.

The United States blamed Iran for attacks on two oil tankers in the Gulf of Oman on Thursday that drove up oil prices and raised concerns about a new US-Iranian confrontation.

Speculation about fresh stimulus from major central banks also continued to bolster bond markets.

The Swiss National Bank said on Thursday it might further relax its ultra-loose monetary policy.

"What you've seen in the last few days is that even though we've had better risk appetite globally, (German) Bunds have not really sold off," said Alexander Aldinger, rates strategist at Bayern LB.

"So, investors don't want to really challenge the current pricing right now."

Germany's benchmark 10-year bond yield fell 1.5 basis points to minus 0.261pc, close to a record low reached a week ago following weak US jobs numbers.

French and Dutch long-dated bond yields also fell to within sight of recent lows .

Across the single-currency bloc, 10-year bond yields were 1 to 2 bps lower on the day.

Spain's 10-year bond yield touched a record low at 0.524pc.

It ended last year around 1.4pc.

Strong demand for bonds has been highlighted in recent days by sales of peripheral government debt, which have benefited from so-called carry trades, where investors take advantage of low short-dated borrowing costs to invest in higher-yielding assets.

Iceland priced a new 500 million-euro, five-year bond on Thursday in a syndicated-bond deal that drew sizeable investor interest.