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Appointment of Lagarde as ECB chief weigh on bonds market

Appointment of Lagarde as ECB chief weigh on bond market

Government bond yields in most of the eurozone economies plunged to new record levels on Wednesday, after EU leaders agreed to appoint Christine Lagarde as the new President of the European Central Bank.

The return on bonds in France for 10 years in the sub-zero region fell to a record low of-0.079%, while the bond yield in Germany for 10 years reached a new record level of-0.39%, only five basis points from the ECB deposit rate.

In the same context, Spain bonds for 7 years joined the negative bond return club.

The most important task for Lagarde, which previously denied any interest in holding office, would be to maintain the same dovish stance of ECB President Mario Draghi.

Lagarde will probably adopt a monetary easing stance that would revive the eurozone economy through boost growth and inflation.  

Hence, Lagarde will probably work on implementing a QE2 programme in her first year as ECB chief and may resume interest rate cuts, where markets are currently expecting an interest rate reduction by 10-basis points in September.

IHS Markit’s euro area Composite Final Purchasing Managers’ Index (PMI) released today showed a slight improvement to 52.2 in June from May’s 51.8, but the reading remained weak.

In meantime, the euro managed to recover its earlier losses to trade around 1.1292 versus the U.S. dollar after hitting a bottom at $1.1268, the lowest in nine days. 

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