FirstFT: Investors struggle to trade eurozone debt without ECB safety net

Good morning. German government bonds are recording their biggest swings since the eurozone debt crisis a decade ago as the European Central Bank’s withdrawal strips the market of one of its most important buyers.

The yield on Germany’s 10-year Bund has moved in at least a 0.1 percentage point range on 79 days in 2022, according to Financial Times calculations based on Refinitiv data. Bund yields have not swung in such a wide range so regularly since 2011, and only did so on one day last year.

Liquidity in the region’s bond markets — the ability to trade debt easily — has been hampered by fears of a looming recession, with many traders growing bearish as the ECB raises interest rates to curb inflation.

At the same time, traders can no longer rely on the ECB as a bond buyer of last resort after the central bank halted its €1.7tn pandemic-era asset-purchasing programme and its main €3.3tn bond-buying scheme this year.

The deteriorating trading conditions have led to a strong uptick in volatility in a market that acts as a yardstick for borrowing costs across the region.

“Market conditions are impaired in the bond markets,” said Antoine Bouvet, senior rates strategist at Dutch bank ING. “Everyone has the same view so no one’s willing to take the other side.”

Thank you for reading FirstFT Europe/Africa — Gary

Five more stories in the news

1. Thames Water reviews data centres’ water use The utility has launched a probe into the impact of data centres, which generate huge amounts of heat, on drinking water supplies to cool servers in and around London as it prepares to impose a hosepipe ban this week on 15mn customers in one of the UK’s worst drought-hit areas.

2. Russia accuses Ukraine of killing Putin supporter’s daughter Moscow’s FSB security service has blamed Kyiv for the car bombing that killed nationalist commentator Daria Dugina, 29, the daughter of Alexander Dugin, on Saturday, accusing a Ukrainian woman of planting the explosive before fleeing to Estonia. Ukraine denied any involvement.

3. Coal-rich Poland laments reliance on Russia Poland responded quickly to the Kremlin’s invasion of Ukraine by banning imports of Russian coal. In doing so, it cut one of its main sources of domestic fuel supply, resulting in the threat of a winter heating crisis and a scramble to find substitutes as far-flung as Colombia and South Africa.

4. Turkey taps tourism to steady fragile economy After two years of the pandemic disruption, tourism in Turkey is on course for a record year, helped by a plunge in the lira that has made it a cheaper destination than many European rivals and offered a foreign currency lifeline to President Recep Tayyip Erdoğan’s government.

5. Kenyan election result challenge Opposition leader Raila Odinga has filed a petition to Kenya’s Supreme Court challenging William Ruto’s victory in this month’s presidential election, demanding a rerun and fuelling uncertainty in east Africa’s most advanced economy. Last week, four of seven electoral commissioners disowned the results, with one claiming the final vote tally was 100.01 per cent.

The days ahead

UK hosepipe bans South West Water will introduce a ban today covering Cornwall and parts of Devon, the first such restrictions in 26 years. Thames Water’s ban comes into effect tomorrow across the south of England, while restrictions for Yorkshire households begin on Thursday.

Inflation data S&P Global/IHS Markit August composite, manufacturing and services purchasing managers’ indices are out for the eurozone, France, Germany, Japan and the US. The eurozone reading is forecast to drop from 49.9 in July to 49.5 in August. EU August flash consumer confidence and US July home sales are also out.

Corporate earnings German property company TAG Immobilien releases first-half results, while US retailer Macy’s delivers second-quarter figures.

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A war over Taiwan could go nuclear The single most important question about a potential war between the US and China over Taiwan is whether it could remain non-nuclear, writes Michael Auslin, author of Asia’s New Geopolitics and a fellow at Stanford’s Hoover Institution.

Betting on crypto to bust Big Tech power Silicon Valley venture capital firm Andreessen Horowitz is betting on cryptocurrencies to break up the excessive concentration of power held by a few Big Tech companies it played a prominent role in creating, Chris Dixon told the FT’s Tech Tonic podcast. Listen to the latest episode here.

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