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GRAPHIC-Euro area 30-year sovereign borrowing costs back above 0%

LONDON, Feb 9 (Reuters) - Thirty-year sovereign bond yields in the euro area are all back in positive territory, a sign that entrenched pessimism in debt markets over the economic outlook may be starting to shift.

Markets worldwide have felt the ripples from recent moves on U.S. Treasuries, where rising yields reflect expectations of stronger economic growth and inflation stemming from President Joe Biden’s spending plans.

Long-dated bonds, more sensitive to inflation signals, have borne the brunt of the selloff, with 30-year Treasury yields rising more than the five- and 10-year sectors.

Recovery signals in Europe are still lacklustre, compared with the United States and Asia, yet Germany’s 30-year bond yield is up almost 20 basis points this year. Ten-year Bund yields meanwhile have risen 13 bps and five-year yields are flat.

The 30-year yield, which first fell below zero in 2019, moved into positive yield territory last week for the first time since September and is currently at 0.02%.

Dutch 30-year bond yields, which turned positive for the first time in five months on Friday, hovered around 0% on Wednesday. Finland’s 30-year bond yield is at 0.14%, after exiting negative yield territory last month. These moves mean 30-year borrowing costs for all euro area sovereigns have climbed back above 0%, according to Refinitiv data.

Tradeweb told Reuters that none of the euro area 30-year benchmark bonds on its platform had negative yields as of Monday’s market close. In contrast, almost 30 billion euros worth of these bonds had sub-zero yields at the end of 2020, representing roughly 27% of the bonds’ almost 110 billion euros market value.

“I have misgivings about whether the reflation trade is justified in Europe, but it should continue for now,” said ING senior rates strategist Antoine Bouvet.

Bouvet noted that the euro zone remains “dogged” by harsher lockdown policies compared with the United States, a slower vaccine rollout and more limited hopes of fiscal stimulus.

“As such, the euro zone reaching ‘escape velocity’, the point where growth is sufficient for stimulus to be withdrawn, is but a distant prospect,” he said.

As of the end of January, Tradeweb data showed almost three-quarters of the euro zone sovereign debt market, worth almost 9 trillion euros, had negative yields.

Any investor who holds negative-yield bonds to maturity stand to lose money, so the 30-year bond moves will be welcomed by the likes of pension funds that rely on long-dated bonds to meet their liabilities.

The move in euro area yields is mirrored across Europe. Denmark’s 30-year bond yield moved back above 0% last month. Sweden’s 30-year bond yield has jumped 34 bps so far this year to 0.66%.

The exception is Switzerland. With the world’s lowest benchmark interest rate at -0.75%, 30-year Swiss yields are at -0.06%. Still, they are up 25 bps already this year and the 0% mark is in sight.

Reporting by Dhara Ranasinghe and Sujata Rao; editing by Larry King

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