Bond Selloff In Europe Drives Stocks Lower

centrzlBy: Johnathan Schweitzer

Asian and European stocks are under selling pressure on Thursday and U.S. stock futures are lower following another selloff in European bonds that has spooked investors and resulted in more market volatility.

In late January the European Central Bank (ECB) launched a new €60 billion monthly bond buying program that floods the market with over one trillion in newly created euros.

The decision by the ECB to launch their massive bond buying program sent the euro tumbling and led to rally in bond and stock markets.

Yields on German benchmark bonds dipped, even falling into negative territory, boosted by large levels of bond buying from the ECB.

But for the past eight days, yields on German benchmark bonds have reversed course and are now bouncing higher as investors lose interest in collecting low returns amid signs of higher inflation on the horizon, buoyed by rising oil prices.

Following German’s march higher, the yields on French, Italian, and Spanish sovereign debtare also rising again, reaching 2015 highs, and impacting interest rates or borrowing costs.

Borrowing costs are now at the high level of the year for Eurozone government bonds

Higher inflation in the Eurozone has the potential to speed up the timeline for when the ECB scales back their bond buying program, also known as quantitative easing.

This growing concern has helped the euro to strengthen in recent days.

Johnathan Schweitzer

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