QE caution keeps euro zone bond yields higher before ECB


Reuters | Updated: 11-09-2019 13:02 IST | Created: 11-09-2019 13:00 IST
QE caution keeps euro zone bond yields higher before ECB
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Eurozone bond yields rose to their highest since early August on Wednesday amid doubts over whether the European Central Bank will announce a fresh round of asset purchases this week. Analysts cited an MNI report late Tuesday that the ECB may delay quantitative easing and tie it to upcoming economic data as a reason for the latest selloff in debt markets.

While the ECB is widely expected to cut interest rates at Thursday's policy meeting, doubts over whether a fresh round of quantitative easing will begin led to a selloff in bond markets -- especially in longer-dated bonds -- over the past week. "If the ECB doesn't announce QE on Thursday it would be assumed that they will go soon," said Peter McCallum, a rates strategist at Mizuho. "Market expectations for Thursday do seem a bit more realistic."

In early trade, most 10-year bond yields in the eurozone were a touch higher on the day. Germany's 10-year bond yield rose to -0.535%, a one-month high. Thirty-year German bond yields rose to 0.027% -- holding in positive territory for a second day. That meant the entire German bond curve was no longer in negative territory.

German 10-year bond yields are 20 basis points above record lows reached a week ago. For markets, the key question is whether the ECB will begin asset purchases to boost growth and inflation. Recent comments from policymakers have played down such a prospect.

"I am still expecting a full package of measures," Jan Von Gerich, chief analyst at Nordea, told the Reuters Global Markets Forum on Tuesday. "The recent market moves illustrate that expectations maybe went a bit too far, and with the ECB hawks on parade, doubts were raised on whether the ECB could meet the high expectations."

Bond yields have also come under pressure this week from signs the eurozone is moving closer to fiscal stimulus. The European Union is bracing for a review of its strict fiscal rules as its economy slows, while a monetary stimulus is considered close to its limits, according to officials and an EU document seen by Reuters.

Also, a report on Monday said Germany is considering setting up independent public agencies that could take on new debt to invest in the country's flagging economy, without falling foul of strict national spending rules.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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