LONDON: Germany’s 10-year government bond yield dipped to a one-month low on Monday, extending recent falls ahead of a speech by European Central Bank chief Mario Draghi to the European Parliament.
Government bond markets across the world have recovered some ground in the past week after a recent sharp sell-off on jitters that strong growth and signs of a pick in inflation will encourage central banks to press ahead with the reversal of ultra-loose monetary policies.
Uncertainty ahead of Sunday’s national election in Italy, the euro zone’s third biggest economy, and the result in Germany of a ballot of Social Democrat party members on a coalition deal with Chancellor Angela Merkel’s conservatives have also provided support for safe-haven German debt. The results of the SPD ballot are due out on Sunday.
In early trade, most 10-year euro zone bond yields were flat to 1 basis point lower on the day.
Germany’s Bund yield briefly dipped to a one-month low at 0.64 percent, pulling back further from more than two-year highs set earlier this month at around 0.81 percent.
It is set to end to end February down around 4 basis points, the biggest monthly fall since October.
The focus on Monday was Draghi, as investors try to assess just how quickly the ECB will wind up its massive stimulus scheme, which is scheduled to run until the end of September.
“It has been flagged that QE (quantitative easing) will end around year-end,” said Rainer Guntermann, a rates strategist at Commerzbank.
“I wouldn’t be surprised if Draghi and other ECB members stress that rates will stay low for longer, which should be supportive for bond markets.”
On Friday, ECB executive board member Benoit Coeure said the bank has bought enough bonds so that it could retreat from further purchases without risking an unwarranted rise in longer-dated bond yields.
Once the bank’s purchases hit a critical threshold, it needs fewer additional buys to contain yields at the longer end of the curve and this is clearly evident in the case of bonds of Germany, Coeure said at a conference in New York.
Coeure is scheduled to speak again on Monday.
Source: Brecorder.com
