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Cautious Draghi, raucous Trump keep German yields near 8-week low
August 24, 2017 / 7:42 AM / 2 months ago

Cautious Draghi, raucous Trump keep German yields near 8-week low

* Trump threatens government shutdown

* Fitch warns of U.S. rating dangers

* Draghi to avoid policy discussion at Jackson Hole

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By John Geddie

LONDON, Aug 24 (Reuters) - Europe’s benchmark German government bond yield was pinned near an eight-week low on Thursday as President Donald Trump’s threat to shut down the U.S. government and an upcoming meeting of global central bankers kept investors cautious.

Trump said Tuesday he would be willing to risk a shutdown to secure funding for a wall along the U.S.-Mexico border. Congress will have about 12 working days when it returns on Sept. 5 from its summer break to approve spending measures to keep the government open, while also facing a looming deadline to raise the cap on the amount the government may borrow.

Fitch Ratings said on Wednesday that a failure to raise the federal debt ceiling in a timely manner would prompt it to review the United States’ AAA sovereign rating “with potentially negative implications.”

Against that backdrop of economic uncertainty, central bankers including Fed chair Janet Yellen and ECB President Mario Draghi are scheduled to speak at an event in Jackson Hole, Wyoming which starts on Thursday.

Sources told Reuters last week that Draghi will not deliver any new messages in his remarks on Friday, and is keen to hold off any policy discussion until the autumn.

“A key driver of the last leg of the rally has been a revision of the market’s hawkish ECB view and we expect this rally to continue for much of the period between now and the September meeting as investors re-balance their portfolio,” Mizuho’s head of euro rates strategy Peter Chatwell said.

German 10-year bond yields were flat on Thursday at 0.38 percent, just above an eight-week low of 0.37 percent struck late Wednesday. Other euro zone yields were broadly unchanged, steadying after Wednesday’s sharp fall.

U.S. yields were just 2 basis points above the 2.16 percent level struck last week, which was the lowest since June 27. Draghi on Wednesday cautioned against hasty policy responses, saying that while unconventional monetary policy was a success, gaps in understanding the relatively new tools remained.

Bundesbank President Jens Weidmann, who is considered more hawkish, called on Wednesday for a quick end to asset buys next year as the outlook did not warrant the extension of the ECB’s 2.3 trillion euro scheme.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Editing by Mark Trevelyan

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