ECB Stimulus Speculation Drives Up German Bonds for Fourth Day

  • Central bank revised purchase limit for bonds under QE program
  • Commerzbank predicts increased securities-buying in December

German government bonds advanced for a fourth day, the longest winning streak since July, as traders predicted the European Central Bank is moving closer to expanding its asset-buying program.

Economic forecasts unveiled by ECB President Mario Draghi on Thursday were even weaker than those in March, just before the central bank started its 1.1 trillion-euro ($1.2 trillion) quantitative-easing plan. Draghi revamped the program, raising its purchase limit to 33 percent per issue of a country’s debt stock, up from 25 percent previously.

Commerzbank AG, which is ranked first among dealers by Germany’s debt agency, predicted the ECB will increase its asset purchases in December. The bank revised its year-end forecast for German 10-year bund yields to 0.7 percent, from 1 percent previously. The median estimate of predictions in a Bloomberg survey is 0.9 percent.

“Right from the start of the program we said the ECB will more likely have to buy more,” said Christoph Rieger, head of fixed-income strategy at Commerzbank in Frankfurt. “It has taken a significant step in this direction and may find itself in a position to act again even sooner than we had expected. Ten-year bund yields have been rejected at the upper end of their established 0.6-0.8 percent range.”

Bunds stayed higher after the U.S. Labor Department’s monthly jobs report Friday showed employers in the world’s largest economy added 173,000 jobs in August, versus a revised 245,000 in July. The median forecast in a Bloomberg survey of economists called for a 217,000 increase. The jobless rate dropped to 5.1 percent, a level that the Federal Reserve considers to be full employment.

Germany’s 10-year bund yield fell six basis points, or 0.06 percentage point, to 0.66 percent at 4:38 p.m. London time, having dropped seven basis points over the previous three days. The 1 percent security due in August 2025 rose 0.575, or 5.75 euros per 1,000-euro face amount, to 103.215.

The ECB began a program of asset purchases in March that initially sent euro-region bond yields to record lows. Policy makers have pledged to buy 60 billion euros of securities a month until at least September 2016 to boost the economy. The central bank bought 61.3 billion euros of public and private debt in July.

After Draghi’s comments Thursday, Italy’s 10-year bond yield tumbled seven basis points, the most since July 30. It slipped a further four basis points on Friday, to 1.88 percent. Equivalent-maturity Spanish bonds yielded 2.08 percent. Lower bond yields are a boon for the ECB because its objective of stronger inflation and growth requires lower borrowing costs to encourage consumers and companies to spend.

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