BlackRock Investment Institute

Macro insights

This year's drivers of euro area bond yields

Long-term government bond yields have risen in the euro area, as in many other developed economies. See the chart. Rising yields – while still well below the levels of U.S. yields – partly reflect growing optimism about the economic restart in the region. Euro area sovereign yield spreads have also widened. The yield spread between 10-year Italian and German government bonds widened to over 120 basis points in May, before narrowing to near post-pandemic lows of around 90 basis points.

Watching bond yields

Chart showing euro area bond yields

Sources: BlackRock Investment Institute, with data from Refinitiv Datastream, June 2021. Notes: The gray area shows the range of 10-year government bond yields of a selected group of developed market economies including Australia, Canada, the euro area, Japan, Sweden, Switzerland, the U.K. and the U.S. The euro area yield refers to a GDP-weighted average yield.

A sharp increase in U.S. yields in the first quarter helped drive up yields in the euro area – and motivated the ECB to ramp up the pace of asset purchases in March. Recent ECB work breaking down the drivers of euro area term premia, the compensation investors demand for holding longer duration bonds, points to increasing global spill-overs, particularly from the U.S. We believe the ECB may be more inclined to lean against any tightening of financing conditions triggered by rising U.S. term premia than by stronger European data. We expect the ECB will decide to maintain its current pace of asset purchases at its meeting this week – see the weekly commentary.

Recent macro insights

The Fed's communication challenge
Federal Reserve officials surprised markets by embracing higher inflation and heralding a lift-off of rates in 2023, rather than 2024.
Powerful restart confirmed
The economic restart in the U.S. is outpacing expectations. The Fed has repeatedly revised its growth estimates for GDP upwards over the past 12 months.
Japan's restart gathers pace
Industrial production has now surpassed pre-Covid levels - ahead of the U.S. and euro area, despite a later restart.
Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Macro Research

Stay ahead of markets with the latest insights from the BlackRock Investment Institute.

Please try again
First Name *
Please enter a valid first name
Last Name *
Please enter a valid last name
Email *
Please enter a valid email
Investor type *
This field is mandatory
Country *
This field is mandatory
Company *
This field is mandatory
Thank you
Thank you for your subscription!
We usually publish weekly insights on every Monday. Expect to receive your first newsletter from us this upcoming Monday.