German Bonds Rise as Oil Collapse Shakes Outlook on Inflation

  • German 10-year bund futures touch record high as stocks slide
  • ECB likely to hint at further stimulus on Thursday: DZ Bank

German government bonds advanced with their Austrian and French peers as the persistent slide in oil prices triggered a global selloff in stock markets, prompting investors to opt for the relative safety of fixed-income assets.

Germany’s 10-year bund futures soared to a record on Wednesday, while yields on the nation’s 10-year bonds touched a two-week low. Plunging oil and China’s attempts to shore up its markets and economy weighed on sentiment, while stock markets stumbled again after a brief pause on Tuesday. Italian and Spanish bonds declined as investors sought the euro area’s higher-rated sovereign securities.

The decline in commodities damped prospects for a pick-up in inflation and fueled speculation that European Central Bank President Mario Draghi will hint at further stimulus measures after the ECB announces its rates decision on Thursday. Yields on Austrian and French 10-year securities fell to their lowest levels since Dec. 3, the day Draghi announced an extension of the central bank’s quantitative easing plan.

The yield difference, or spread, between Italian and German 10-year bonds reached the widest in four months as investors chose core government bonds over higher-yielding peripheral counterparts.

“We had weak Asian markets and that’s had an impact,” said Daniel Lenz, lead market strategist at DZ Bank AG in Frankfurt. Lower yields were also “due to the retreating oil prices and dropping inflation expectations.” This added to the view that Draghi might give some hints on “further measures in tomorrow’s press conference.”

Benchmark German 10-year bond yields fell seven basis points, or 0.07 percentage point, to 0.48 percent as of 4:48 p.m. London time, the lowest since Jan. 7. The 0.5 percent security due in February 2026 rose 0.64, or 6.40 euros per 1000-euro ($1,091) face amount, to 100.165. The price of the 10-year bund futures contract touched 161.31, its highest on record.

Yields on Austrian 10-year securities earlier fell as much as seven basis points to 0.72 percent and those on their French peers also slipped seven basis points to 0.80 percent, both the lowest levels since Dec. 3.

Similar-maturity Italian bond yields climbed eight basis points to 1.64 percent. The spread versus German bunds widened to as much as 1.20 percentage points, the most since Sept. 18. The yield on Spanish 10-year bonds increased seven basis points to 1.77 percent.

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