European Bonds Advance as Data Seen Supporting Demand for Safety

  • Data to confirm September consumer prices fell, economists say
  • President Draghi has said ECB could step up stimulus

German government bonds advanced amid speculation data this week will highlight weakness in the euro region’s economic recovery, supporting demand for safer assets.

Spanish and Italian bonds also climbed before reports this week that economists said will confirm consumer prices in the currency bloc fell in September, and industrial production declined in August. Euro-area sovereign securities have outperformed their U.S. peers over the past three months amid speculation the European Central Bank may expand its unprecedented asset-purchase program, even as the U.S. Federal Reserve moves toward a interest-rate increase.

“The expectation is in general for a relatively weak week on the data front which should be quite supportive for bonds,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. “The market is wistfully thinking the ECB is going to step up purchases under the program by the end of the year.”

Germany’s 10-year bund yield fell four basis points, or 0.04 percentage point, to 0.58 percent at 4:07 p.m. London time, having climbed 11 basis points last week. The 1 percent security due in August 2025 rose 0.355, or 3.55 euros per 1,000-euro ($1,137) face amount, to 104.015.

Spain’s 10-year bond yield dropped two basis points to 1.82 percent Monday and that on similar-maturity Italian debt declined two basis points to 1.68 percent.

Bond Returns

The euro region’s debt gained 2.5 percent through Oct. 9, compared with returns of 1.5 percent on U.S. Treasuries and 1.9 percent on U.K. gilts, according to Bloomberg World Bond Indexes.

Investors are looking to economic data to gauge the likelihood that the ECB will step up stimulus. While the ECB’s QE program pushed the average euro-region bond yield to a record low of 0.4252 percent in March, yields have since rebounded.

The central bank is “ready to use all the instruments available within our mandate to act, if warranted, in particular by adjusting the size, composition and duration of the asset-purchase program,” President Mario Draghi told delegates in Lima, according to comments published on the central bank’s website on Oct. 9.

Even so, Vitas Vasiliauskas, governor of the central bank of Lithuania and a member of the ECB’s Governing Council, said there is no need for any additional measures for the moment, according to an interview with the Wall Street Journal published Monday.

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