Bond yields in the eurozone are falling, in the hopes of a de-escalation between the German court and the ECB.
Italy also reduced the cost of borrowing in the eurozone, as the changes in the German Supreme Court could lead to a decrease in confrontation with the European Central Bank.
The current rift between the German court and the ECB was the decision of the court in May to require the ECB justification to its bond purchase program, in which if not given within 3 months, the German central bank will withdraw its cooperation on the program. Such decision called into question the future of the euro.
But now, according to two sources, the appointment of a new chairman and judge in the German court may lead to a de-escalation in the tensions with the ECB.
German Finance Minister Olaf Scholz said that soon, an announcement will be made regarding the decision of the Constitutional Court.
Analysts view the events as positive for the eurozone bond markets, which have long been supported by massive purchases of ECB assets.
"I think this will help to some extent, especially with the QE (quantitative easing) program and the ECB," said Antoine Bouvet, senior strategist at ING.
Yield on Italy's 10-year bonds fell 6 basis points to 1.36%, returning to March lows.
The observed 10-year gap in yield on Italian-German bonds amounted to about 178 bp, while yield of other eurozone bonds decreased by 3-6 bp per day.
Meanwhile, the yield on 10-year German bonds has dropped by 3 bps to a weekly low of -0.44%.
