European bond yields stay on the retreat

I’ve been noting since yesterday that the bond market is the spot to watch in trading this week and we’re seeing a return of the bids at the end of last week in trading today. 10-year German bund yields have now fallen by nearly 4 bps to 0.985% – its lowest in almost four weeks:

And more importantly, it is threatening to take out a key level in the form of its 100-day moving average (red line).

It’s arguably a sign of traders looking for safety as recession risks continue to amplify in Europe. The PMI data on Friday was abysmal and when you throw in Russia gas cuts, it’s a rather dire outlook to say the least.

Adding to that, the drop in yields is also perhaps a sign that traders are getting less comfortable with the ECB even as policymakers continue to talk up their resolve to combat inflation. The window is closing to tighten policy and the ECB has a knack for timing things wrongly and hiking into a recession in the past.