LONDON, Oct 31 (Reuters) - HSBC said on Wednesday that yields on benchmark 10-year German government bonds could fall to 25 basis points on ongoing uncertainty surrounding Italian budget plans and still subdued price pressure in the single currency bloc.
Ten-year bond-yields in Germany, the euro zone’s biggest economy and the euro zone’s benchmark bond issuer, are trading at 0.39 percent and fell last week to seven-week lows of 0.34 percent amid a major selloff in stocks.
“We see potential for the 10-year German yield to drop back towards 25 bps, a level which was last reached in May when concerns about Italy last surged,” HSBC fixed income strategist Wilson Chin said in the bank’s fixed income asset allocation note, published on Wednesday.
“Other factors should keep downward pressure on core yields. These include falling oil prices and evidence of still-subdued core inflation, both of which have seemed to alleviate concerns that the ECB might tighten monetary policy too quickly.” (Reporting by Dhara Ranasinghe, Editing by Tom Finn)