German Bonds Drop as Euro-Area Inflation Tempers ECB SpeculationNeal Armstrong
German government bonds dropped for the first time in four days after euro-area inflation beat analyst estimates, damping the case for the European Central Bank to expand monetary stimulus.
Benchmark 10-year yields rose from near the lowest level since July, while those of France, the Netherlands and Belgium also climbed. The ECB meets next week to set policy and release updated consumer-price forecasts. Faster price increases erode the value of fixed payments on bonds. A gauge of German inflation expectations jumped from the lowest since May 2012.
“This suggests there’s no urgency for the ECB to act,” said Harvinder Sian, a fixed-income strategist at Royal Bank of Scotland Group Plc in London. “In the big picture this is not a game changer as inflation is still low and has been surprising on the downside for some time. From the ECB’s perspective it’s a question of what their 2016 forecasts look like.”
Germany’s 10-year bund yield rose six basis points, or 0.06 percentage point, to 1.63 percent at 4:19 a.m. London time after dropping to 1.55 percent yesterday, the lowest since July 24. The rate has declined three basis points this week. The 1.75 percent bond maturing February 2024 fell 0.585, or 5.85 euros per 1,000-euro ($1,381) face amount, to 101.13.
Annualized euro-area consumer prices, calculated using a harmonized European Union method, rose 0.8 percent this month, matching January’s reading. That’s above the median estimate in a Bloomberg News Survey for 0.7 percent.
French 10-year yields rose seven basis points to 2.20 percent. Their Dutch equivalents also climbed seven basis points, to 1.85 percent. The rate on Belgium’s 10-year bonds increased six basis points to 2.34 percent.
Germany’s 10-year break-even rate, a gauge of the consumer-price outlook derived from the yield gap between bunds and index-linked securities, rose three basis points to 1.34 percentage points, having dropped to 1.30 percentage points earlier, matching the lowest since May 2012.
German bonds returned 2.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Italian securities gained 3.9 percent and Spain’s earned 4.2 percent.