• ECB forecast to keep deposit rate unchanged on Jan. 21
  • Latest inflation data due two days before ECB meeting

With a plunge in global commodity prices threatening the European Central Bank’s already distant inflation goal, bond investors will be watching Mario Draghi next week for signs of a response.

Euro-area government bonds have returned 0.8 percent since Dec. 3, when the ECB delivered stimulus that was seen by some investors as inadequate. Turmoil in China has further clouded the outlook for global growth and fueled concern that the Frankfurt-based central bank’s goal for 2 percent annual-price growth is becoming unattainable.

The policy meeting will come just two days after a report analysts said will confirm the euro-area inflation rate stayed at just 0.2 percent last month, while a gauge of future price growth favored by Draghi reached the lowest since October on Friday.

“The tone of Mr. Draghi’s comments will now be quite dovish given the recent downward inflation surprises and the increased risk to the ECB’s medium-term inflation outlook,” said Nick Stamenkovic, a fixed-income strategist at Edinburgh-based broker RIA Capital Markets Ltd. “It’s a question of when, rather than if, for the ECB. That’s going to give good support to bunds near term.”

The yield on the Germany’s 1 percent bund due in August 2025 fell four basis points, or 0.04 percentage point, this week to 0.47 percent as of the 5 p.m. London close on Friday. The price rose 0.39, or 3.90 euros per 1,000-euro ($1,097) face amount, to 104.925. The nation’s bond due in February 2026 yielded 0.54 percent, down from 0.59 percent when it was sold at auction on Jan. 13.

ECB officials will keep the deposit rate at a record-low minus 0.3 percent on Jan. 21, according to all 40 economists in a Bloomberg survey. At the central bank’s December meeting, policy makers extended their 60 billion-euro a month bond-buying program to March 2017 from September 2016.

A summary of last month’s meeting, published on Jan. 14, showed some members of the Governing Council argued in favor of making a deeper cut to the deposit rate and stepping up the pace of purchases.

The five-year, five-year forward inflation-swap rate, a rolling gauge of inflation expectations that Draghi cited in the past when advocating monetary stimulus, slumped to 1.58 percent on Friday, the lowest since Oct. 2 based on closing prices. The euro has jumped against all but one of its 16 major peers since the ECB’s December gathering, further depressing consumer-price pressures.

Italian 10-year government bonds fell for the first time in three weeks, with the yield rising four basis points to 1.57 percent. The yield on similar-maturity Spanish bonds climbed four basis points to 1.75 percent.

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