The debt markets have just passed a major milestone as euro bund futures margin yields topped 0% for the first time in nearly three years. Perhaps this means that Europe is returning to more normal borrowing conditions.
The negativity in the euro bund price, the benchmark for the eurozone, was the result of aggressive bond-buying by the European Central Bank to boost inflation. That’s why the rise in Bunds yield to 0.025% is so significant.
What is euro bund?
Eurobonds are securities that are issued in foreign currencies. Such bonds can be traded both on foreign and domestic exchanges. For instance, an asset issued by the German federal government to fund its debt is called euro bund ETF.
What are euro bund futures?
To dive deeper into the euro bund futures price, let’s first discuss what are euro bund futures.
This is a futures contract, the underlying asset of which is federal loan bonds (government debt securities). Euro bund futures are known as a conservative and safe asset for investment. By purchasing this security, the investor is guaranteed to receive a return of their funds with a profit – a coupon that reflects the euro bund futures margin yield rate.
Why is the euro bund index is 143?
There are several reasons why the euro bund futures price has dropped almost 18% (from 171 to 143):
- Awakening inflation
- US Treasury yield
- Yield hunters
- Bond pool with a negative yield
Why build your euro bund invest strategy now
Eurozone inflation hit record levels of 5%, well above the ECB’s 2% target, and the economy is recovering from the COVID-19 pandemic, so ultra-low yields no longer look justified.
Today’s data showed that inflation in the UK was at its highest in nearly 30 years, confirming that price increases are proving to be sustainable everywhere.
German euro bund ETF yields rose 40 basis points in the last month alone, a far cry from conditions in 2016 when the ECB expanded its deflationary bond-buying program, sending yields below 0% for the first time.
Knowing what is euro bund is crucial when creating your euro bund invest plan since you can measure a variety of indicators. For instance, one factor driving up the cost of borrowing in Germany is the yield on US Treasury bonds. It has risen in anticipation that the Federal Reserve may start raising interest rates and even consider reducing the number of assets on the balance sheet, which exceeded $8 billion.
What’s the euro bund future?
This is not a paradigm shift – most investment banks still expect a euro bund price return to its earlier targets. Moreover, we are waiting for the Bund returns to be close to 0% or slightly above the zero thresholds by the end of 2022. Also you can see euro btp and euro bobl futures.
The ECB estimates that inflation will average 3.2% this year and fall below its target of 2% in 2023. This could mean that the eurozone central bank, unlike its US or UK counterparts, will not be raising rates anytime soon. What in turn would positively impact the euro bund future.