# German yields steady, spreads tighten after recent repricing Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-12-21 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: German borrowing costs little changed as investors Meta Description: German borrowing costs remained stable and spreads between core and periphery tightened following the recent European Central Bank meeting. URL: https://financedigest.com/german-yields-steady-spreads-tighten-after-recent-repricinghtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-12-21t165129z2lynxmpeibk0agrtroptp3global-cenbanks-1736814697298-compressed.jpg) By Stefano Rebaudo (Reuters) – German borrowing costs were little changed and spreads between the core and periphery tightened on Wednesday, as investors anticipated little upside for yields in the short term after last week’s European Central Bank meeting spurred repricing. While investors are concerned about more public spending in 2023 to fight the energy crisis, the ECB pledged further interest rate hikes and said it would reduce its bond holdings in March. [German short-dated yields](https://www.financedigest.com/german-bond-yields-rise-after-schnabel-fuels-inflation-worries.html "German bond yields rise after Schnabel fuels inflation worries") edged up to their highest in more than a decade, with the two-year yield up 1 basis point (bp) to 2.52%. It was [around 2.2% before the ECB](https://www.financedigest.com/no-messing-around-with-red-hot-inflation-five-questions-for-the-ecb.html "No messing around with red-hot inflation: Five questions for the ECB") met. I think we are done, at least for now, after the yield rise which followed the [ECB policy meeting](https://www.financedigest.com/sterling-steadies-vs-dollar-ahead-of-boe-ecb-meetings.html "Sterling steadies vs dollar ahead of BoE, ECB meetings") last week,” said Massimiliano Maxia, senior fixed income specialist at Allianz Global Investors. Germany’s 10-year [Bund yield](https://www.financedigest.com/euro-zone-bond-yields-rise-after-u-s-jobs-data.html), the euro zone’s benchmark, was down 1 bp at 2.29%. [ECB euro short-term rate](https://www.financedigest.com/stocks-euro-gain-amid-divergent-fed-ecb-rate-hike-outlooks.html "Stocks, euro gain amid divergent Fed, ECB rate hike outlooks") (ESTR) forwards price in the depo rate to peak at around 3.4% in the summer of 2023, from about 2.8% before last week’s meeting. Bond [prices should hover around the current levels](https://www.financedigest.com/g7-finance-chiefs-agree-on-russian-oil-price-cap-but-level-not-yet-set.html "G7 finance chiefs agree on Russian oil price cap but level not yet set") from today to year-end,” Maxia added. Italy’s 10-year government [bond yield](https://www.financedigest.com/wall-st-stocks-fall-bond-yields-rise-as-china-drops-quarantine-rule.html "Wall St stocks fall, bond yields rise as China drops quarantine rule") fell 5 bps to 4.42%, with the closely watched spread between Italian and German 10-year yields tightening to 212 bps. It [widened from 190 to 220 bps after the ECB](https://www.financedigest.com/high-inflation-recession-risk-widen-ecb-dilemma.html "High inflation, recession risk widen ECB dilemma"). The Bank of Japan (BOJ) shocked markets on Tuesday with a surprise tweak to its [bond yield control that allows long-term interest rates to rise](https://www.financedigest.com/global-equities-gain-as-rising-bond-yields-pressure-gold.html "Global equities gain, as rising bond yields pressure gold") more, but analysts expect limited spillover effects. “Japanese buyers are already overweight U.S. dollar cash” and other currencies, said George Saravelos, strategist at Deutsche Bank, referring to the impact of the [BOJ policy](https://www.financedigest.com/yen-trims-gains-as-possible-next-boj-governor-says-current-policy-appropriate.html "Yen trims gains as possible next BOJ governor says current policy appropriate") shift. They will use it to buy [yen and Japanese](https://www.financedigest.com/japanese-yen-gains-as-ueda-set-to-be-named-next-boj-governor.html "Japanese yen gains as Ueda set to be named next BOJ governor") bonds as domestic yields rise. By extension, the domestic and foreign [bond market](https://www.financedigest.com/britains-bond-market-turmoil.html "Britain’s bond market turmoil") adjustment is likely to be fairly orderly,” he said, adding that the biggest market impact is likely on forex. Since last week’s [ECB policy meeting](https://www.financedigest.com/german-gloom-dampens-stocks-as-fed-ecb-meetings-beckon.html "German gloom dampens stocks as Fed, ECB meetings beckon"), German real yields have been in positive territory. The 10-year inflation-linked rate was at 0.13%. It [hit its highest level since](https://www.financedigest.com/uk-mortgage-approvals-hit-lowest-since-june-2020.html "UK mortgage approvals hit lowest since June 2020") February 2014 at 0.273% on Oct. 21. The targeted longer-term refinancing operations (TLTRO) repayments will settle today. Euro [zone](https://www.financedigest.com/euro-zone-inflation-seen-just-above-ecbs-target-in-2025-poll-shows.html "Euro zone inflation seen just above ECB’s target in 2025, poll shows") banks are set to repay early another 447.5 billion euros ($474.62 billion) in multi-year ECB loans. In theory, this should support the transmission (of the money market) into the new 2% [ECB depo rate,”](https://www.financedigest.com/ecb-raises-interest-rates-again-cuts-bank-subsidies.html "ECB raises interest rates again, cuts bank subsidies") said Christoph Rieger, head of rates and credit research at Commerzbank, adding that the new rate on repo specials was bid at around 1.75%. ($1 = 0.9429 euros) (Reporting by Stefano Rebaudo; editing by Barbara Lewis, Paul Simao and Josie Kao) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---