Last Time German Bonds Did This Well the Euro Area Was in Crisis

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  • Ten-year yields drop most since euro-zone debt crisis in 2011
  • Bunds steady as data show regional consumer prices falling

The last time German government bonds performed this well over a quarter, the euro area was in such a state of crisis that the very existence of the single currency was in doubt.

While there’s little talk of the bloc breaking up now, the safety of Europe’s benchmark debt is in demand for other reasons. Regional inflation remained below zero for a second month in March, data showed Thursday, in the latest sign that the stimulus the European Central Bank is pumping into the system is struggling to boost the economy.

And the stimulus itself is creating demand, with officials expanding their monthly debt purchases by 20 billion euros ($23 billion). The rally in bonds, particularly from higher-yielding nations such as Spain and Italy, has accelerated since the ECB’s March 10 policy decision, where the central bank cut all of its main interest rates.

“Overall, a very good first quarter” for bonds, said Daniel Lenz, lead market strategist at DZ Bank AG in Frankfurt. “The rate decision by the ECB has triggered this strong rally in the periphery.”

German 10-year bund yields dropped 47 basis points, or 0.47 percentage point, this year, the most in any quarter since September 2011.

Bunds were little changed Thursday after the inflation report and as data showed German retail sales unexpectedly dropped in February. Europe’s benchmark sovereign securities yielded 0.16 percent as of 4:11 p.m. London time. The price of the 0.5 percent bond due in February 2026 was 103.335 percent of face value.

Across the euro area, government debt earned 3.4 percent this quarter, the most since this time last year, when the ECB was just starting its quantitative-easing program.