July 4, 2018 / 8:25 AM / 3 months ago

HSBC slashes end-2018 German yield forecast on growth, politics

LONDON (Reuters) - HSBC has cut its end-year forecast for 10-year German Bund yields to 0.40 percent from the previous 0.75 percent, citing concerns for global growth and the flare-up in German political tensions, according to a note received on Wednesday.

The bank said the changed call was dictated partly by expectations the European Central Bank would start hiking interest rates later than expected but added the view was also driven by “lower risk appetite, which has been fuelled by global growth worries and political uncertainty.”

“Regarding the latter, tension within the German coalition could also weaken the broader safety net for euro area political risk,” HSBC told clients, adding there was potential for yields to even fall towards 0.20 percent in the short term if rate hikes were postponed further.

German 10-year yields have slipped below 0.30 percent, after having risen as high as 0.80 percent earlier in the year in February DE10YT=RR.

Since then global tensions have flared over trade tariffs, economic data has disappointed and Germany’s governing coalition has only narrowly avoided getting toppled.

Reporting by Sujata Rao, Editing by Abhinav Ramnarayan

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