German Bond Yield Turns Positive as Traders Reappraise ECB’s QE

Bond Selloff Deepens as Draghi Disappoints Markets
  • Thirty-year bund yields climb to highest since June 24
  • Investors taken aback by Draghi’s reluctance to extend QE

German 10-year bonds are offering investors a positive yield again.

Europe’s benchmark government bonds tumbled for a second day, pushing yields above zero for the first time since July, after the European Central Bank’s reluctance to signal additional monetary easing undercut investor confidence in its accommodative stance.

ECB President Mario Draghi downplayed the need for more stimulus on Thursday, surprising some economists who foresaw action by the central bank at this week’s meeting. While defending the central bank’s asset-purchase program’s achievements, Draghi said ECB committees have a “full mandate” to redesign it, if needed.

The remarks helped spark a global selloff in sovereign bonds, with longer-dated securities baring the brunt of the move. Germany’s 30-year securities reached their highest level since the Brexit vote result was announced on June 24.

“It was a bit unexpected to see no actions from the ECB yesterday at a time when they revised down their growth and inflation forecasts,” said Frederic Pretet, a rates strategist at Scotiabank Europe Plc in Paris. “In the past, they used to say that they want inflation go back to target with undue delay. It’s no longer the case.”

Pretet said investors’ initial reaction may be to acknowledge that “there will be less activity from the ECB and central banks in general.”

Yields Climb

Germany’s 10-year bund yield rose seven basis points, or 0.07 percentage point, to 0.006 percent as of 3:41 p.m. London time, having jumped six basis points on Thursday. The zero percent security due in August 2026 fell 0.663, or 6.63 euros per 1,000-euro ($1,122) face amount to 99.944. The two-day surge in yields is the biggest since March.

The yield on the nation’s 30-year bonds rose 10 basis points to 0.61 percent, the highest since the day the results of Britain’s decision to leave the European Union became clear.

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