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Salaries are rising in Europe. But no one seems to have told the bond market.
Data released at the end of last month showed that the pace of wage growth on the continent was increasing, providing some relief to European Central Bank President Mario Draghi, who is trying to forgo some of the stimulus measures in the country. 39, time of the crisis.
But in the part of the European bond market that reflects inflation expectations, investors still seem gloomy.
The breakeven point of inflation – the difference between nominal yields and the amount paid by indexed debt – has fallen since the middle of last year. They are now historically cheap, which augurs growing concerns about the state of the economy of the eurozone.
"The breakeven points of the euro zone have fallen sharply. . . both by lower commodity prices and basic inflationary pressures in the eurozone, "said Stefano Di Domizio, head of fixed income strategy at Absolute Strategy Research in London.
For example, the 10-year inflation rate implied by German Bunds has fallen by about 40 basis points over the last three months and currently stands at around 0.94%. Italian and French balance points also fell.
Rates have not responded to the most recent data on employment, according to which euro area workers' wages rose by 2.5% year-on-year in the third quarter of 2018 – the latest figures available – compared to 2.2% in the previous quarter.
Mr. Di Domizio noted that the thresholds of balance tended to follow wage growth.
This means that breakevens in the eurozone are expected to increase in the coming weeks, he said, making current prices a "buying opportunity".
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