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German Bonds Little Changed Before ECB Monetary Policy Decision

Germany’s government bonds were little changed, with 10-year yields about one basis point from the highest level in a week, before the European Central Bank announces its monthly monetary policy decision.

Spain’s bonds snapped a three-day decline as the nation sold 10-year debt at the lowest yield in more than three years. The ECB, led by President Mario Draghi, will keep its main refinancing rate at a record-low 0.5 percent, according to the forecasts of 67 of 70 economists in a Bloomberg News survey.

“It is likely policy makers will keep their dovish bias, but we don’t think they will cut interest rates today,” said Chiara Cremonesi, a fixed-income strategist at UniCredit Research in London.

Germany’s 10-year yield was at 1.74 percent as of 11:43 a.m. London time after rising to 1.75 percent yesterday, the highest since Oct. 29. The price of the 2 percent bund maturing in August 2023 was 102.31.

The central bank will announce its interest-rate decision at 1:45 p.m. in Frankfurt and Draghi is scheduled to hold a press conference 45 minutes later.

Spain sold 4 billion euros ($5.4 billion) of bonds maturing in five, 10 and 13 years. The Madrid-based Treasury allotted the 2023 bonds at an average yield of 4.164 percent, compared with 4.269 percent at a previous sale on Oct. 3. Investors bid for 2.57 times the amount of debt on offer versus 1.96 times in October.

Spanish 10-year yields were little changed at 4.15 percent after rising as much as five basis points.

France auctioned bonds maturing in 2024 at a yield of 2.41 percent and securities due in 2045 at 3.41 percent. French 10-year yields were little changed at 2.23 percent.

Inflation Outlook

“Few would want to take new positions because it’s not clear what the ECB will do,” said Richard McGuire, head of European rates strategy at Rabobank International in London. “We also have U.S. non-farm payrolls tomorrow.”

Inflation in the euro area has slowed to less than half the ECB’s 2 percent target and unemployment is the highest since the currency bloc was founded in 1999. While analysts said that boosts the case for action to shore up the region’s recovery, the central bank has only two quarter-point reductions left before the key interest rate reaches zero.

Five-year inflation swap rates, a market gauge of price-growth expectations over that period, declined to 1.34 percent on Nov. 1. That’s within one basis point of the level reached in June last year, which was the lowest since December 2008. The rate dropped two basis points to 1.37 percent today.

‘Focal Point’

“The market is now saying that it expects inflation in the euro zone to remain low for a long time,” said Kari Hallgrimsson, London-based head of European inflation trading at JPMorgan Chase & Co., which last week predicted a rate cut in December. “This will become a focal point for anyone looking to understand what the ECB is going to do with its interest-rate decision.”

The U.S. added 120,000 jobs in October, according to a Bloomberg survey of economists before the Labor Department reports the figure tomorrow. Employment increased 148,000 in September and 193,000 in August.

German securities lost 1.3 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s gained 11 percent and Italy’s returned 6.4 percent

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