German Yields Fall to Six-Month Low on ECB Stimulus Speculation

German 10-year yields fell to a six-month low on speculation slowing inflation will prompt the European Central Bank to take more stimulus measures this week.

Benchmark bunds pared a gain as European stocks erased losses and emerging-market currencies rallied. Data in the U.S. showed factory orders fell less than economists forecast this month. Austria sold five-year notes at a record-low yield today, while Greece auctioned bills at the lowest rate since 2010. Italian two-year yields declined to a record.

“It’s a bond-friendly environment,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The data’s not been great, especially in the U.S. and that’s going to affect other areas of the world, and you’ve got the ECB potentially doing something on Thursday.”

Germany’s 10-year yield was little changed at 1.65 percent at 4:48 p.m. London time after slipping to 1.63 percent, the lowest level since Aug. 5. The price of the 1.75 percent bund maturing in February 2024 was at 100.93.

The Stoxx Europe 600 Index fell 0.2 percent after the MSCI Asia Pacific Index dropped 2.7 percent, the most since June. The Standard and Poor’s 500 Index gained 0.7 percent.

Orders for U.S. factory goods fell 1.5 percent in December, according to the Census Bureau. The median estimate in a Bloomberg survey of analysts was for a drop of 1.8 percent.

Sterilization Plan

ECB President Mario Draghi would consider ending the sterilization of crisis-era bond purchases if he’s openly backed by the Bundesbank, two euro-area central bank officials familiar with the debate said, asking not to be identified because the deliberations are private. Such a move would boost liquidity in the euro-area financial system.

Declining inflation expectations will prompt the ECB to cut its refinancing rate to 0.1 percent at its policy meeting on Thursday and officials may also consider stopping the sterilization, Danske Bank A/S chief economist Frank Oland Hansen in Copenhagen wrote in an e-mailed note today.

Austrian 10-year bonds dropped for the first time in nine days even as the nation’s borrowing costs fell at auctions. The benchmark yield rose two basis points to 1.91 percent.

Austria sold 700 million euros ($945 million) of notes due October 2018 at an average yield of 0.749 percent, the lowest yield since April 2003, when Bloomberg began tracking the results. Investors bid for 2.62 times the securities allotted versus 2.07 times at a previous auction on Nov. 5. The nation also sold bonds maturing in January 2062 at 2.789 percent.

Greek Support

Greek bonds advanced as Dutch Finance Minister Jeroen Dijsselbloem said the nation may receive additional support from the European Union.

“If Greece makes the steps we agreed upon and they are successful in bringing budgets in order, we are prepared to give additional support,” said Dijsselbloem, who is also chairman of the euro group of finance ministers, in an interview on broadcaster RTLZ.

Greece auctioned 812.5 million of 26-week bills at 4 percent, the lowest rate since January 2010, according to data compiled by Bloomberg. Investors bid for 2.31 times the securities allotted. Belgium also sold bills today.

Greek 10-year yields slid seven basis points to 8.29 percent. The rate on similar-maturity Portuguese securities increased four basis points to 5.05 percent. The yield dropped to 4.92 percent yesterday, the lowest since June 2010.

Italy’s two-year note yield fell as much as four basis points to 0.85 percent, the least since Bloomberg began collecting the data in 1993. The yield on two-year Spanish notes was little changed at 0.94 percent.

Germany is scheduled to sell 4 billion euros of five-year notes tomorrow. The nation last sold the 1 percent securities due February 2019 at an average yield of 0.90 percent at an auction on Jan. 15. Investors bid for 1.7 times the securities allotted.

German bonds returned 2.1 percent this year through yesterday, Bloomberg World Bond Indexes show. Spain’s earned 2.9 percent and Italy’s gained 2.2 percent.

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