At 6:00 p.m. (5:00 p.m. GMT), Germany’s 10-year borrowing rate ended stable at -0.63%.
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Eurozone borrowing rates eased moderately on Tuesday in the wake of the Fed’s surprise announcement, which cut key rates by 50 basis points to lessen the economic impact of the coronavirus, a measure already anticipated by investors.
“The Fed took the markets a little bit by surprise by lowering its rates by 50 basis points, which was expected to be almost 100% but by the middle of the month, during their meeting on March 18,” commented with AFP Julien Rolland, bond manager specializing in sovereign rates at Aviva Investors. “So the Fed has taken the lead.”
“In the light of (constantly) evolving (economic) risks (coronavirus)”, the Fed “today decides to lower its rates by half a percentage point”, she announced in a press release published shortly after a meeting of G7 finance ministers and central bankers, from which no concrete announcement had come out.
This decision, taken outside the usual calendar of monetary meetings, was taken unanimously. This is a first since the 2008 financial crisis.
The Australian central bank beat it on Tuesday by announcing a cut in interest rates to a historically low level.
“Rates have fallen overall” in the wake of this urgent decision, “especially in the United States where we are starting to anticipate even more cuts,” according to Julien Rolland.
ECB expected at turn
In Europe, this easing was more pronounced on the rates of less solid euro-zone countries such as Italy and Spain.
On the other hand, the variation on the German rate – which did not exceed its lowest point reached on Monday – was not spectacular after the Fed, “it was more the rate spreads within the euro zone which tended to tighten more, especially between Italy and Germany, “noted Mr. Rolland.
Before the US central bank’s surprise communication, borrowing rates in France and Germany rose slightly while those in Italy and Spain fell.
“For the moment, it is difficult to see what the consequences will be on the markets”, particularly the equity markets, added the bond manager.
If the European stock markets accelerated immediately after the announcements of the American central bank, they then tempered their enthusiasm at the close, while Wall Street was moving in the red.
“Now, it is fairly widely anticipated that the ECB, once the Fed has lowered its rates, will in turn react with a drop of ten basis points from next week’s meeting,” said Rolland .
The President of the European Central Bank (ECB) Christine Lagarde said that she was ready Monday evening to “take the appropriate measures” in the face of the risks that the progression of the new coronavirus poses to the economy, giving an appointment to the markets March 12, on the occasion of the next meeting of the institution.
On the indicators side, inflation in the eurozone fell in February, according to a provisional figure, thus falling well below the ECB’s target, which could be a sign of the impact of the coronavirus.
At 6:00 p.m. (5:00 p.m. GMT), Germany’s 10-year borrowing rate ended stable at -0.63%.
That of France fell to -0.33% against -0.31% the day before. It fell to -0.34%, a lowest since September 6, 2019.
The ten-year rate for Spain eased significantly to 0.18%, a lowest since the beginning of October, against 0.28% the previous day while that of Italy fell to 0.98% against 1.13%.
The UK’s 10-year interest rate was little changed, ending at 0.39% compared to 0.40% on Monday.
In the United States, the ten-year borrowing rate sank further to 1.05% compared to 1.16% the previous day, after plunging to 1.02%, the new historic low. The US 30-year rate fell to 1.65% from 1.72%. The one at two years stood for 0.76% against 0.90%.
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