LONDON (Reuters) - The euro jumped on Tuesday, bond yields rose and European stocks gave up some gains after a top European Central Bank policymaker said the bank might raise its sub-zero deposit rate before normalizing monetary policy.
Ewald Nowotny told Reuters that the ECB’s 2.55 trillion-euro ($3.1 trillion) bond-buying program would be wound down by the end of this year, paving the way for the bank’s first rate rise since 2011.
“The market is moving on Nowotny’s comments that suggest there could be a 20-basis-point move on the deposit rate rather than a 10-basis-point step up,” ING strategist Martin Van Vliet said.
Euro zone borrowing costs rose by 1 to 3 basis points across the board. The yield on Germany’s 10-year Bund, the benchmark for the bloc, rose to a five-day high of 0.525 percent before settling at 0.52 percent at the close. DE10YT=RR
The euro EUR=EBS rose as high as $1.2378 and was up slightly on the day.
Overall, yields are still a good distance from the year’s highs; Germany’s 10-year Bund for example had climbed as high as 0.81 percent in February.
Since then, low inflation and concern over a trade dispute between the United States and China have pushed euro zone government borrowing costs lower. A wave of redemptions from maturing bonds expected in April has also kept yields lower.
“If you take into account the very strong redemption and coupon payments due in the next few weeks, the market should stay well-supported,” said DZ Bank Strategist Christian Lenk.
Commerzbank estimates that around 60 billion euros of European government bonds mature this week and only about 13 billion euros of supply is available to replace them.
“Another factor boosting demand for European governments bonds has been data from the Japanese Ministry on Monday which showed a switch in Japanese investors from U.S treasuries to European government bonds,” DZ Bank’s Lenk said.
Elsewhere, Chinese leader Xi Jinping promised to lower import tariffs and take measures to widen market access to foreign investors, helping to soothe market jitters over a U.S.-China trade row.
U.S. 10-year Treasuries fell on the news, pushing their yields up almost 2 basis points to 2.80 percent US10YT=RR.
Reporting by the Saikat Chatterjee and Fanny Potkin; additional reporting by Abhinav Ramnarayan, editing by Larry King