Long-dated bond yields in the eurozone shot higher on Monday on the back of a calmer tone in world markets and increased expectations for fiscal stimulus in Germany.
Germany has the fiscal strength to counter any future economic crisis “with full force”, Finance Minister Olaf Scholz said on Sunday, suggesting Berlin could provide up to 50 billion euros ($55 billion) of extra spending.
That followed a report on Friday that Germany was prepared to ditch its balanced budget rule and take on new debt to counter a possible recession, pushing bond yields higher.
Firmer sentiment in equity markets and a report that the US Treasury is considering issuing 50 or 100-year bonds also provided an opportunity for bond investors to take profits on recent hefty price gains, analysts said.
Thirty-year bond yields across the single currency bloc were up nine to 10 basis points on the day. Germany's 30-year bond yield was on track for its biggest one-day jump since 2017, rising to -0.11 percent.
Germany's 10-year bond yield was up four bps at -0.63 percent, off record lows around -0.73 percent hit last week.
“The fiscal spending debate is taking shape so we have an expectation that a swing in supply may come about although we think that's unlikely,” said Commerzbank rates strategist Rainer Guntermann.
“There's also a debate about 50-year bond issuance in the US, which we've had before, adding to this cocktail is that the market is consolidating after last week.”
Hopes of fresh stimulus measures from major economies have helped soothe global recessionary fears. World stock markets were also cheered by a decision from China's central bank to alter the way it sets a key interest rate benchmark, a move seen by analysts as reducing borrowing costs for companies.
Japanese bond yields nudged away from three-year lows and US Treasury yields rose 5-13 bps.
In Italy unease was also creeping in as Prime Minister Giuseppe Conte gets ready to address the Senate on Tuesday on a government crisis.
Italy's 10-year bond yield was up 10 bps on the day at 1.50 percent.
The anti-establishment 5-Star Movement said on Sunday that Matteo Salvini, leader of the far-right League, was no longer a credible partner, apparently closing the door on any possibility of resurrecting the ruling coalition.
The League has put forward a motion of no confidence in the government, but 5-Star and the opposition Democratic Party refused to debate it and are discussing forming a coalition among themselves.
“Under the earliest scenario, elections can only happen in November,” said Pooja Kumra, European rates strategist at TD Securities. “Markets also expect an easing package from ECB next month so any fall in (Italian) BTPs could be a buying opportunity.”
Eurozone bond rise from record low levels, 30-year leads way