European Yields Drop as ECB is Expected to Expand QE

Euro-area bonds advanced, pushing 10-year yields from Spain to Germany to record lows, amid speculation the European Central Bank is prepared to expand its stimulus plan as the region’s economic outlook dims.

Rates on similar-maturity Austrian, Belgian, Dutch, Finnish, Irish and Italian debt also fell to all-time lows. The euro region’s bonds have extended gains into an eighth month. ECB President Mario Draghi said on Aug. 22 that bets on price increases in the currency bloc “exhibited significant declines.” Policy makers are scheduled to hold their next rate-setting meeting on Sept. 4.

“It’s pretty straight forward; more and more investors are expecting something big to be announced at the beginning of September,” said Felix Herrmann, an analyst at DZ Bank AG in Frankfurt. “At the moment they are just continuing the hunt for yield.”

Spanish 10-year yields fell eight basis points, or 0.08 percentage point, to 2.10 percent at 2:10 p.m. London time after reaching 2.083 percent, the lowest since Bloomberg began tracking the data in 1993. The 2.75 percent bond due in October 2024 rose 0.7, or 7 euros per 1,000-euro ($1,318) face amount, to 105.925.

The rate on similar-maturity Italian debt declined to as low as 2.351 percent, while that on French 10-year (GFRN10) bonds slid to 1.23 percent, both records. German bund yields dropped to as low as 0.9 percent.

via Businessweek

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza