Bond Gains Push Yields to Record Lows Across Europe as CPI Falls

Euro-area government bonds rose, pushing yields across the region to record lows, amid speculation a lack of price growth in the currency bloc will trigger further stimulus from the European Central Bank.

Italy’s 10-year yields approached 2 percent as a report showed inflation in the euro region slowed in November to match a five-year low. ECB President Mario Draghi said last week that buying government bonds, or quantitative easing, may be a policy tool for expanding stimulus. Greece is the only euro-area nation that has seen its securities decline in November, according to Bloomberg World Bond Indexes.

“We have the bond markets, which are continuing to print lower and lower yields,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. “Most of it was driven by the expectation of inflation dropping, which is something we had confirmation of today.”

Italian 10-year yields fell two basis points, or 0.02 percentage point, to 2.04 percent at 4:50 p.m. London time after falling to 2.024 percent, the lowest level since Bloomberg started collecting the data in 1993. The rate has dropped 31 basis points this month. The 2.5 percent bond due in December 2024 rose 0.18, or 1.80 euros per 1,000-euro face amount, to 104.24.

Austrian, Belgian, Dutch, Finnish, French, German, Irish, Spanish and Portuguese 10-year yields reached all-time lows.

The rate on benchmark German 10-year bunds touched 0.694 percent and that on similar-maturity Spanish securities dropped to 1.861 percent.

Inflation Slows

Consumer prices rose 0.3 percent this month from a year earlier, the European Union’s statistics office in Luxembourg said today, in line with the median estimate of economists in a Bloomberg News survey. That compared with a reading of 0.4 percent last month and matched September’s level, which was the lowest since October 2009.

The euro “QE cascade is gaining momentum with Draghi’s urgency to counter inflation risks pushing peripheral yields to new all-time lows,” Christoph Rieger, head of fixed-rate strategy at Commerzbank AG in Frankfurt, wrote in a note dated yesterday.

Bonds were also supported as the price of crude oil slid to a four-year low after OPEC agreed to keep its production target unchanged yesterday. Brent crude fell as much as 2 percent to $71.12 per barrel in London today, the lowest level since July 2010. Falling oil prices drag down prospects for inflation, helping to preserve the value of fixed-income assets.

German securities returned 0.9 percent this month through yesterday, Bloomberg’s bond indexes show. Portugal’s and Italy’s earned 1.8 percent, Ireland’s 1.4 percent, while Greece’s lost 1.3 percent.

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