European markets remain in decline

Stock markets across Europe remained in decline on Monday June 8th, as the government bond rout continued to weigh on equities. Meanwhile, the ongoing Greek worries haunt investors.

Germany’s DAX declined by 0.5 per cent, the French CAC 40 was more than 0.5 per cent lower and the Euro Stoxx 50 index shed nearly 0.7 per cent. The UK’s leading share index, the FTSE-100, was trading around neutral.

Yields on German government bonds continued to rise as investors pile out of the sovereign debt market, which rattled stock markets in Europe. After being up more than two per cent by mid-April, bond markets have erased all of the year’s gains, and then some. 

The Bank of America Merrill Lynch Global Broad Market Index of bonds is now down 0.4 per cent for the year. In addition, investors are swapping their euro denominated bonds in favour of higher-yielding bonds in other currencies such as the US dollar and sterling. 

Japanese investors sold 2.038 trillion yen (€14.61 billion) of euro-denominated bonds in April; their second largest net selling month on record.

"US Treasuries have higher yield and lower volatility. So at the moment, Japanese investors will find European bonds the least attractive," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.

The Greek debt crisis is also adding to the mix of factors forcing European equities lower on Monday, as meetings continue to be fruitless. No compromise has been reached despite the negotiations last week and over the weekend, while Friday saw Greece delay its repayment to the International Monetary Fund until later in the month. 

Stock markets will likely remain volatile until an accord is reached, although the timing of this remains uncertain. Both sides are redrafting reform proposals in the hope of reaching a deal soon, however, Athens remains resolute on implementing a number of austerity measures that its European creditors are keen to see it accept - such as those to do with pensions and labour market regulations.