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.