Draghi Has Another Chance to Give Bond Markets More QE Direction

  • ECB chief to speak at Euro Finance Week conference on Nov. 20
  • Euro-area bonds advance after lackluster GDP numbers

With the euro zone’s economy losing momentum, bond investors will be hanging on Mario Draghi’s every word when he speaks at a conference in Frankfurt next week.

They’ll be looking for clues on whether the European Central Bank president does indeed expect to take further steps to shore up the recovery before the year is out.

Draghi already confirmed this week that officials will extend the bank’s 1.1 trillion-euro ($1.2 trillion) bond-purchase program beyond September 2016 if necessary. Now investors are looking for a little more certainty about his plans for the ECB’s Dec. 3 policy meeting.

“The GDP reports on Friday support our call that the ECB will do more next month,” said Lyn Graham-Taylor, a rates strategist at Rabobank International in London. “While we think Draghi wouldn’t want the market to price in everything before the meeting starts in December, he’s likely to make it clear the central bank is ready to ease monetary policy further.”

Government bonds rose from Germany and France to Italy this week as data Friday showed growth in euro-zone gross domestic product unexpectedly slowed in the third quarter.

The yield on Germany’s 10-year bund, the euro area’s benchmark sovereign debt, fell 14 basis points, or 0.14 percentage point, in the week to 0.56 percent as of the market close at 5 p.m. London time Friday. The 1 percent security due August 2025 climbed 1.290, or 12.90 euros per 1,000-euro face value, to 104.175.

Italy’s 10-year bond yield dropped 22 basis points this week to 1.56 percent, after reaching the lowest level this month.

Rabobank predicts the ECB will cut its deposit rate by 0.15 percentage point to minus 0.35 percent and increase its monthly bond purchases by between 20 billion euros and 30 billion euros at the last policy meeting of 2015.

Draghi is due to address the Euro Finance Week conference -- a gathering of financiers, regulators and policy makers -- on Nov. 20. Before that on Monday comes official inflation data which, according to economists surveyed by Bloomberg, will confirm price growth in the currency bloc stagnated at zero percent in October.

That would support the case for more QE or lower interest rates, which may give bonds a further boost.

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