German 10-Year Yield Reaches Highest Since ECB’s QE Announcement

Updated on

Germany’s government bonds fell, pushing the 10-year yield to the highest since the European Central Bank announced its quantitative-easing program in January.

The yield on the 30-year bund climbed above 1 percent for the first time since March 5. Euro-area securities handed investors a loss in April, according to the Bloomberg Eurozone Sovereign Bond Index, ending 15 consecutive months of gains. The losses came even as data Monday showed the ECB’s monthly bond-buying program continued at a steady pace in April. The plan is due to last until September 2016.

“We had a very strong trend in the first part of the year and this is reversing a bit,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “Everyone knows that when QE stops we’re going to have a repricing, and this is a reminder of that. It’s probably too early for that but it’s a mark of how little reward you get for the risk you’re taking.”

The yield on German 10-year bunds, the euro area’s benchmark sovereign securities, was at 0.45 percent as of 4:51 p.m. London time, up eight basis points, or 0.08 percentage point, since April 30. That’s the highest since Jan. 22, the day the ECB announced its stimulus plan. The price of the 0.5 percent bond due in February 2025 was 100.5 percent of face value. European government bond markets were closed on May 1.

The ECB reported purchases of 95.1 billion euros ($106 billion) of government debt through the end of April on Monday, up from 47.4 billion euros at the end of March. The weighted average maturity of the securities held fell to 8.3 years, from 8.6 years previously.

Buyer Beware

While the ECB is still buying debt, a danger on the horizon for euro-area bond investors, particularly for the highest-yielding debt, is the central bank reduces asset purchases as the outlook for growth and inflation improves. ECB President Mario Draghi has said the program won’t be curtailed before the central bank’s target date.

The Bloomberg Eurozone Sovereign Bond Index lost 1.4 percent last month, the first decline since December 2013. Prior to that, holders were up more than 18 percent since 2013.

The yield on German 10-year bunds climbed 19 basis points last month, also the biggest increase since December 2013. The slide was reinforced last week as investors including Jeffrey Gundlach of DoubleLine Capital cast doubt on the sustainability of low or negative yields in the region.

The yield on Italian 10-year bonds rose three basis points since April 30 to 1.53 percent, while that on similar-maturity Spanish debt was also up three basis points at 1.50 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE