LONDON – German government bond yields hit a record low on Tuesday as a monthly gauge of economic sentiment reinforced fears the eurozone’s engine may be slipping toward recession.
The ZEW institute’s index of German economic sentiment turned negative for the first time since late 2012, falling to -3.6 in October from 6.9 the previous month.
Economists polled by Reuters had expected a reading of 1.
Speaking after the release, ZEW’s chief economist said the German economy could shrink in the third quarter, taking it into recession after a contraction of 0.2 percent in April-June.
Greek 10-year bond yields rose above 7 percent for the first time since March, extending a rise prompted by political uncertainty and nervousness over plans by Athens to exit the country’s bailout early.
“We don’t have buyers in the Greek bond market because of the political risk, the possibility of snap elections in early 2015,” a bond trader at a major Greek bank told Reuters.
Prime Minister Antonis Samaras won a parliamentary vote of confidence in his right-left coalition government last Friday but political analysts say a snap election early next year is likely which could propel the radical leftist SYRIZA party to power.
A poll on Tuesday showed SYRIZA ahead of the main government party.
Government sources described the market moves as an “overreaction” and said they will not affect plans for an early exit from the bailout. [Reuters]