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Uncertainty prevailing internationally due to the war in Ukraine, as well as the decisions of the European Central Bank to increase its key interest rates, are pushing up Cypriot bond yields, in the context of pressures on government bond yields more broadly in the secondary markets. strong>
According to the latest data, the yield of the Cypriot 10-year bond on Friday was at 3.149%, showing a small increase compared to 2.996% the previous day. The difference from the German 10-year, which is the reference point, yesterday amounted to 165 basis points.
Yields in most European countries are on the rise, with KPMG economist and CEO Tassos Yaesmidis explaining that markets have been discounting the ECB's announcement for several weeks to end the negative interest rate cycle, while interest rates are rising. the war in Ukraine. Indicatively, the performance of the German 10-year entered a positive field at the beginning of March after several years.
“The ECB's decision to raise key interest rates in July has been reflected in the markets with the increase in government bond yields in recent weeks,” Mr Giasemidis told KYPE. It is recalled that the ECB announced last Thursday that its key interest rates will increase by 25 basis points in July, the first interest rate increase in 11 years, while the bond market program (APP) ends on July 1.
< p class = "text-paragraph">According to Mr. Giasemidis, the gradual withdrawal of the quantitative easing measures, the so-called tapering, was deemed necessary in an effort to slow down inflationary pressures, although the effectiveness of the measure “is not so obvious as the price increases are fueled by the increase “As a result of artificial interventions in the market from the conflicts in Ukraine, sanctions and sanctions”. “In addition,” he added, concern and uncertainty about the course of the world economy and national economies, with Europe facing perhaps the greatest negative consequences of the current situation. “
Mr Giasemidis also recalled that support programs for economies during the Covid-19 pandemic were largely financed by government spending through rising public debt, while also highlighting the ECB support the countries on the periphery of the EU, which face the greatest challenges in terms of public debt ratios.
Need for prudent fiscal policy
Asked about the impact of the expected rate hike, Giasemidis said the ECB decisions increase the cost of borrowing for governments, but added that by taking advantage of the low interest rate environment, governments have been cautious in refinancing debt. thus making financial needs more manageable.
“Countries with relatively high public debt ratios, such as Cyprus, should remain committed to reducing it through prudent fiscal policy. “This may be a significant challenge for an external economy that has to operate in a particularly difficult international political and economic environment,” he said.
will inevitably lead to a restructuring of investment portfolios, while the course of the Euro, which is influenced by interest rate increases, in relation to other strong currencies, has its own significance.
Source: KYPE
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