German Notes Slide as ECB Refrains From Adding Stimulus Measures

German government bonds tumbled, pushing two-year note yields up by the most in five months, as the European Central Bank refrained from adding measures to keep down borrowing costs.

Ten-year yields rose from near a six-month low after President Mario Draghi reiterated the ECB’s guidance on future interest rates and said officials did not discuss ending the sterilization of bond purchases undertaken by the Securities Markets Program. Economists from Goldman Sachs Group Inc. and Nomura International Plc had said he may do that to boost boost liquidity. Spanish bonds gained after the nation sold 5.59 billion euros ($7.6 billion) of notes at record-low yields.

“The market seems disappointed as it was expecting some type of action at today’s ECB meeting,” said Alessandro Giansanti, a fixed-income strategist at ING Groep NV in Amsterdam. “Draghi has left the door open to further intervention but they want to wait for the next forecasts due in March. However, there is the impression that the ECB is less worried about a deflation risk.”

Germany’s two-year note yield rose four basis points, or 0.04 percentage point, to 0.12 percent at 4:32 p.m. London time. That’s the biggest increase since Sept. 5. The zero percent security maturing in December 2015 slipped 0.090, or 90 euro cents per 1,000-euro face amount, to 99.770. The 10-year yield increased six basis points to 1.70 percent after dropping to 1.60 percent yesterday, the least since Aug. 1.

Rate Expectations

Draghi, speaking at a press conference in Frankfurt, signaled officials will wait until next month before deciding whether to cut interest rates further as money markets stabilize and the economy shows some signs of recovery.

“We remain firmly determined to maintain the high degree of monetary accommodation and to take further decisive action if required,” Draghi said. “We firmly reiterate our forward guidance. We continue to expect the key ECB interest rates to remain at present or lower levels.”

Halting the absorption of liquidity from the now-terminated SMP was not discussed and officials had a broad discussion about the instruments they could use, he said.

The ECB left the benchmark rate at 0.25 percent, as predicted by all except four of 66 economists surveyed by Bloomberg News. The rest forecast a cut to 0.1 percent. The ECB last lowered the refinancing rate in November.

The implied yield on the Euribor futures contract expiring in December 2014 increased three basis points to 0.29 percent.

Spain’s 10-year yield dropped six basis points to 3.66 percent, within two basis points of the lowest since September 2006, after the government sold debt maturing in 2017 and 2019.

Spanish Sales

The Madrid-based Treasury sold the April 2017 notes at 1.562 percent, and securities due in April 2019 at an average yield of 2.254 percent, the lowest at three- and five-year auctions since Bloomberg started compiling the data in 2004 and 2005, respectively.

Greek 10-year yields declined 20 basis points to 7.80 percent. The yield on the nation’s benchmark securities dropped 29 basis points yesterday, the most in almost a month, after the European Union was said by to two officials with knowledge of discussions to weigh extending the length of the country’s rescue loans.

French bonds slid, pushing yields up from a two-month low as the nation sold 7.99 billion euros of debt maturing between 2024 and 2032.

French 10-year yields increased six basis points to 2.28 percent, having dropped to 2.18 percent yesterday, the lowest level since Dec. 2.

“It feels like we’ve reached a turning point in the rally in prices that occurred in January,” John Wraith, a London-based fixed-income strategist at Bank of America Corp., said before Draghi’s press conference. “People are starting to feel a bit more bearish again and with a bit more conviction.”

German bonds returned 2.2 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s earned 3 percent while French bonds gained 2 percent.

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