German Two-Year Yield Drops to Record After Draghi's QE Comments

  • Draghi says policy makers will reexamine QE in December
  • Italy’s yield premium over bunds declines to least since March

German two-year notes advanced, pushing the yield to a record low, after European Central Bank President Mario Draghi said policy makers will reexamine the degree of stimulus they are providing in December.

Italian 10-year bonds also climbed, pushing the yield difference, or spread, over similar-maturity German debt below 100 basis points for the first time since March. Draghi told reporters at a press conference in Malta that the central bank’s 1.1 trillion-euro ($1.2 trillion) bond-buying plan can be adjusted in size, composition or duration if needed. Further lowering of the ECB’s deposit rate was also discussed at the meeting, Draghi said.

It looks like “Draghi believes an increase in QE or some other easing in policy is required, and will look for data and forecasts to back this up at the December meeting,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. “So very dovish language and signaling of more action.”

The yield on Germany’s two-year note fell six basis points, or 0.06 percentage point, to minus 0.31 percent as of 2:24 p.m. London time, after earlier touching minus 0.322 percent, the lowest since Bloomberg started tracking the data in 1990. The zero percent security due in September 2017 rose 0.105, or 1.05 euros per 1,000-euro face amount, to 100.595.

Germany’s 10-year yield fell five basis points to 0.52 percent, while the yield on similar-maturity Italian bonds fell eight basis points to 1.52 percent. That left the yield difference between the securities at 100 basis points, after earlier touching 99.8 basis points.

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