Government bonds staged a powerful rally on Tuesday as investors bet the economic fallout from Russia’s invasion of Ukraine will push central banks to raise interest rates more slowly than previously anticipated.
The biggest moves came in the eurozone, where Germany’s 10-year bond yield sank below zero for the first time in a month as markets reacted to a string of comments from senior European Central Bank policymakers arguing against any drastic shift in monetary policy until it becomes clearer how the crisis in Ukraine will affect the eurozone economy.
Derivatives linked to short-term interest rates show that investors now expect the ECB to lift interest rates by less than 0.2 percentage points from the current record low of minus 0.5 per cent by the end of the year. Two weeks ago markets were pricing in a return to zero this year.