German Bonds Decline Along With Peers as Draghi Cools QE Talk

  • ECB chief says need for more action still an `open question'
  • Yields rise across euro region as manufacturing picks up

German bonds fell with their euro-zone peers after European Central Bank President Mario Draghi said further stimulus may not be necessary in December, little more than a week after he signaled a boost to quantitative easing.

Spanish bonds also dropped, pushing the 10-year yield to the highest since Oct. 22, when Draghi used a press conference after the central bank’s regular policy meeting to announce officials would reexamine their monetary-easing program.

His latest comments stoked speculation the policy chief is pulling back from that position. Further stimulus remains an “open question,” Draghi said in an interview with Italian daily Il Sole 24 Ore published Oct. 31. ECB Governing Council member Ewald Nowotny told Austria’s Kleine Zeitung that he’d “advise caution and a steady-hand policy” in reassessing QE.

“People are having some second thoughts” about how far the ECB will extend stimulus, said Jan Von Gerich, chief strategist at Nordea Bank AB in Helsinki. “But in general there are too many people reading too much into Draghi’s words. The press conference is the main communication tool of the ECB and there were clear signals there.”

Germany’s benchmark 10-year bund yield rose five basis points, or 0.05 percentage point, to 0.56 percent as of 4 p.m. London time. The yield has climbed from 0.42 percent last week, the lowest since May. The 1 percent security due in August 2025 fell 0.45, or 4.50 euros per 1,000-euro ($1,104) face amount, to 104.15.

Stimulating Rally

At the end of the ECB’s last meeting, Draghi said policy makers would re-examine their stimulus policies, including the size, duration and composition of the 1.1 trillion-euro bond-purchase program at their December gathering. Euro-zone government bonds rallied after the press conference in Malta.

The officials’ latest comments highlight the risk of investors getting ahead of themselves and repeating the losses suffered between April and June. Back then, exuberance over the start of QE pushed Germany’s 10-year bund yield to within 0.05 percentage point of zero, only to jump more than a percentage point in less than two months.

The ECB said it increased the pace of German public-debt purchases under its QE plan to 12.2 billion euros through October, from 11.9 billion euros as of the previous month. It started the program in March.

On the other hand, a Markit Economics report Monday showing euro-zone manufacturing unexpectedly accelerated last month may encourage speculation there’s less need for the ECB to boost stimulus.

Spain’s 10-year yield climbed eight basis points to 1.75 percent. That pushed the premium over similar-maturity bunds to 119 basis points, the widest spread in almost two weeks.

The yield on Italy’s bond due in December 2025 increased seven basis points to 1.65 percent, while Portugal’s 10-year yield rose six basis points to 2.60 percent.

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