Peak inflation drives German debt interest to two-month highs

14/09/2021 – 15:19

Interest on the Bund (Germany’s benchmark bond, maturing in 10 years) reaches highs in two months after the Bundesbank (the country’s central bank) anticipated on Tuesday that inflation will rise to a peak of 5%. by the end of 2021.

Prices increased by 3.9% in August and 3.8% in July, according to the general index -the CPI- and compared to the same months of the previous year. This is the highest growth among the main economies of the euro area due to the most advanced cycle in the recovery and due to the special impact of the strong rise in industrial prices (at a year-on-year rate close to 10%) and raw materials.

The Bund’s yield stands at -0.31%, after starting the year at -0.6%, a couple of tenths of the -0.1% in May, when the market anticipated the first peak of inflation. and introduced the debate on the withdrawal of monetary stimuli (tapering) of the Central European Bank (ECB).

Last week, the institution chaired by Christine Lagarde insisted that current inflation is “temporary” and announced a reduction in debt purchases as the beginning of the end of the emergency program designed to contain financing conditions during the pandemic.

“Although the reduction by the ECB last week is not a tapering Properly said [es acorde con final previsto para el programa PEPP en marzo de 2022 y coherente con el avance de la reconstruccin], we detect a growing influence of hawks [partidarios de normalizar la poltica monetaria lo antes posible y volver a la disciplina fiscal previa a la pandemia] in the details “, considers Gilles Moc, economist at AXA IM, who explains that” the recognition of inflation risks is new “.

Spain’s risk premium will remain stable

These tensions are still mild. Spain’s risk premium (Bund-bond spread) has fallen to 65 points after the movement of Germany’s debt, and if the average forecast of analysts for both benchmarks is followed, it will remain stable in the coming months. with the Bund trending at 0% and the Spanish bond advancing towards 0.8%, from the current 0.35%, which reflects the belief that the risk will continue to be mutualised and the withdrawal of stimuli will be gradual.

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