Records Abound in European Bonds as ECB Feeds Negative Yields

  • German 5-year yield approaches ECB deposit rate of minus 0.2%
  • Region's bonds advance as Draghi seen easing policy further

Yields on German five-year notes touched a record low, along with their Austrian and Italian peers, as investors added to bets that the European Central Bank will announce further stimulus measures when policy makers meet next week.

Price gains in bonds across the region have driven about a third of the yields on securities in the $6.4 trillion Bloomberg Eurozone Sovereign Bond Index below zero. More than $1 trillion of bonds now yield less than the ECB’s minus 0.2 percent deposit rate, excluding them from the central bank’s asset-purchase program. Markets are pricing in at least a 10 basis-point cut to the rate, according to futures data compiled by Bloomberg.

Bonds have rallied amid speculation that the ECB will also boost its purchase plan after President Mario Draghi reiterated on Nov. 20 the central bank will do what it must to accelerate inflation. The institution currently buys about 60 billion euros ($64 billion) of public and private sector debt each month.

“We will see a 10 basis-point cut in the deposit rate,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt, citing the bank’s official forecast. “Alongside that, we might see an increase of monthly quantitative easing by 10-20 billion euros.” He said Draghi could “exceed expectations” and adopt other measures which could drive European bond yields lower in the short term.

Germany’s five-year note yield was little changed at minus 0.18 percent as of 4 p.m. London time, having reached a record-low minus 0.197 percent. The price of the 0.25 percent securities due in October 2020 was 102.12 percent of face value. Similar-maturity Austrian and Italian note yields declined to as low as minus 0.143 percent and 0.329 percent respectively on Thursday.

A negative yield means investors buying the securities now will get back less upon maturity than they paid.

Benchmark German 10-year bund yields were little changed at 0.48 percent after falling to 0.46 percent, the lowest this month.

Italy plans to auction as much as 5.25 billion euros of debt maturing in five, seven and 10 years on Friday.

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