German Bonds Reverse Drop as Investors Eye ECB Rates Decision

  • Ten-year bund yield falls from highest level in almost a week
  • ECB officials set to announce latest policy decision Thursday

Germany’s government bonds advanced, reversing an earlier decline, as traders looked forward to this week’s European Central Bank policy decision, when officials may argue that falling consumer prices support the case for policy divergence with the Federal Reserve.

Benchmark 10-year bunds, which slid earlier Tuesday with their U.S. counterparts, were supported as stocks in Europe and the U.S. declined, boosting demand for haven assets. A report showed annual euro-area consumer prices dropped 0.1 percent in May, in line with the median prediction of economists surveyed by Bloomberg. The ECB’s inflation goal is just below 2 percent.

Euro-area bonds declined Monday after Fed Chair Janet Yellen said on May 27 that it was “appropriate” for the central bank to “gradually and cautiously” increase U.S. interest rates in the coming months. Over the past month, the securities outperformed Treasuries as economic data in the 19-nation currency bloc supported the case for policy divergence with the Fed.

“Wall Street has opened lower and maybe that’s giving a bit of support” to haven assets, said Nick Stamenkovic, a strategist at broker RIA Capital Markets Ltd. in Edinburgh. “All eyes this week will be on the ECB meeting on Thursday, and obviously the U.S. employment report on Friday.”

Yields Drop

German 10-year bund yields fell three basis points, or 0.03 percentage point, to 0.14 percent as of the 5 p.m. close in London, after earlier rising to 0.19 percent, the highest level since May 25. The 0.5 percent security due in February 2026 rose 0.275, or 2.75 euros per 1,000-euro ($1,113) face amount, to 103.48. The yield climbed three basis points Monday, the biggest increase since May 18.

The yield on Treasury 10-year notes was little changed at 1.84 percent, after rising as much as four basis points. Trading in U.S. government securities was closed worldwide Monday for Memorial Day in America and the Spring Bank Holiday in the U.K.

The Stoxx Europe 600 Index of shares fell for the first time in six days, sliding 0.8 percent.

The euro-region inflation data came two days before ECB officials convene in Vienna to set monetary policy and assess whether they’ve done enough to sustain an economic recovery.

The ECB is expected to keep its stimulus plan unchanged after President Mario Draghi announced in March an expansion of its monthly asset-purchase program by a third to 80 billion euros and cut the central bank’s deposit rate further below zero.

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