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QE caution keeps euro zone bond yields near highs before ECB

Reuters | Brussels | Updated: 11-09-2019 15:55 IST | Created: 11-09-2019 15:39 IST
QE caution keeps euro zone bond yields near highs before ECB
Image Credit: Pixabay

Euro zone bond yields touched 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 a report late Tuesday that the ECB may delay quantitative easing and tie it to upcoming economic data as a reason for the latest sell-off in debt markets. Many ECB policy-makers favor resuming purchases of bonds, but opposition from some northern European countries is complicating the issue, Reuters reported last week, citing sources.

Such stories, alongside recent hawkish comments from some ECB officials, have cast doubt over a fresh round of asset purchases this week. This has sparked selling in bond markets, although the ECB is expected to cut interest rates and deliver other stimulus measures on Thursday. "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."

Most 10-year bond yields in the eurozone were a touch higher on the day, holding close to recent highs. Germany's 10-year bond yield rose to -0.527%, a one-month high. Thirty-year German bond yields rose to 0.038% - 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. "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.

Elsewhere, Portugal sold one billion euros of 10 and 15-year bonds at an auction at record low yields.


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