September 17, 2019 / 7:44 AM / a month ago

Euro zone bond yields edge lower as oil jitters continue, Fed eyed

* Core government bond yields continue to edge down

* Large moves not expected ahead of Fed decision

* Economic sentiment surveys, Dutch budget expected

By Yoruk Bahceli

LONDON, Sept 17 (Reuters) - Euro zone government debt yields edged lower on Tuesday as geopolitical uncertainty stemming from the weekend attack on Saudi oil facilities underpinned a cautious tone in bond markets before an expected rate cut from the United States on Wednesday.

The attack, which shut 5% of global crude output, caused the biggest surge in oil prices since 1991 on Monday, sending investors flocking to safe haven assets.

Topped with uncertainty around Brexit, this reversed a sell-off in euro zone government bonds after yields reached six-week highs last week.

Bond yields again edged lower on Tuesday as those risks remained on the table.

While U.S. President Donald Trump said on Monday he did not want to go to war, he said the United States was still investigating if Iran was behind the Saudi strikes.

On the Brexit front, British Prime Minister Boris Johnson said on Monday that a Brexit deal was beginning to emerge, but the EU said he offered nothing to break the impasse during a visit to Luxembourg.

“It will be mainly a waiting game for Wednesday [for the Fed meeting] with developments in oil markets and risk sentiment,” said KBC rates strategist Mathias van der Jeugt.

“Though I must add that all in all side effects [from the Saudi attack] to other markets were rather small. We’ve seen some flight to quality going into Bunds but taking into account what happened last week those moves remain rather limited - I think that’s because we have the Fed [coming up],” he added.

The Federal Reserve is expected to cut rates by 25 basis points when it concludes its two-day meeting on Wednesday.

Longer-dated euro zone government bond yields were up to 1 basis point down on the day .

Germany’s 30-year yield was down 1 bp to 0.05%. Its 10-year benchmark yield was also down 1 bp to -0.48%.

ZEW economic sentiment surveys are due out of Germany and the euro zone at 0900 GMT.

The Dutch government will be presenting its budget to parliament at the opening ceremony of a new parliamentary session. The ceremony will “will keep market focus on change of fiscal heart in core countries,” Commerzbank analysts wrote in a client note. (Reporting by Yoruk Bahceli; Editing by Angus MacSwan)

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