Eurozone government bonds were moving higher yesterday with safe-haven German Bunds leading the way, as investors grew more wary about how and when Britain will leave the European Union.
Swiss government bonds surged the most, reflecting safe-haven demand in the euro area.
British lawmakers handed Prime Minister Boris Johnson the first major parliamentary victory of his premiership on Tuesday by signalling their support for the Brexit deal he agreed with the European Union last week.
But that was overshadowed minutes later when parliament defeated him on his timetable to rush the legislation through the House of Commons in just three days, making ratification of his deal by the October 31 deadline almost impossible.
Talk of an early general election to break the impasse and of a possible Brexit extension dominated market participants’ decisions on Wednesday as they waited for European leaders to respond to Britain’s request for a delay.
European Council President Donald Tusk said on Tuesday that he would recommend that the 27 other EU member states approve a delay until next year.
But a French diplomatic source said France was ready to grant only a few days, ruling out any extension beyond that.
German 10-year Bund yields were down 4.2 basis points at -0.41%, a three-day low, with the rest of the main European countries also down by 3 to 4 bps.
Swiss government bonds were down the most by 11.4 bps at -0.62%, after falling to a one-week low of -0.63%, as safe-haven Swiss assets perform strongly in times of uncertainty.
Britain’s Gilts were also falling, last by 5.3 bps to 0.66%, having slipped to a one-week low of 0.65% earlier. “There is a lot of noise and uncertainty for the time being,” said Rainer Guntermann, rates strategist at Commerzbank.
“I won’t be surprised to see more support to the bonds and spreads to tighten further,” Guntermann said, adding that further support this week is likely to come from big French government bond redemptions and coupons, which will most likely be reinvested in the market. This should be “very supportive,” he said.
Elsewhere, the European Central Bank is due to meet on Thursday, but most analysts concur that the meeting should be a non-event, given that the central bank’s planned monetary policy stimulus is due to start soon, on November 1.
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