Europe's Bond Bulls Looking to ECB Speakers for Vindication

  • ECB Chief Economist Praet scheduled to talk in Rome on Monday
  • Region's bonds gained most in first quarter since QE started

Holders of the euro area’s government bonds get their chance next week to assess central bankers’ words for clues on how far officials are willing to go with stimulus measures that propelled the asset class to its most profitable quarter in a year.

Spanish 10-year bonds jumped with their Italian counterparts this week, outpacing gains by benchmark German bunds, as the ECB started to implement a 20 billion-euro ($23 billion) increase to its monthly asset-purchase program. Spain’s five-year note yield dropped to a record. Securities across the euro region earned 3.3 percent in the first quarter, according to Bloomberg World Bond Indexes.

The gains came as a March 31 report showed consumer prices fell last month, highlighting how far policy makers still need to go before they meet their inflation goal of just under 2 percent. Data next week will show retail prices in the currency bloc stagnated in February, according to a Bloomberg survey of economists.

European bonds held their gains even after a U.S. Labor Department report Friday showed employment rose in March more than economists predicted and a rebound in wages also beat forecasts.

ECB Governing Council member Peter Praet, who is also the central bank’s chief economist, is scheduled to speak in Rome on Monday. Praet has sought to clarify ECB President Mario Draghi’s March 10 comment that he didn’t think more interest-rate cuts would be needed, which briefly pushed bond yields higher and boosted the euro. Vice President Vitor Constancio is due to present the central bank’s annual report to lawmakers in Brussels on April 7, the same day the institution releases an account of last month’s policy meeting, when officials expanded stimulus.

“In Europe, when you talk about bonds you have to take into account the huge programs of the ECB, which will continue to influence the market for at least more than a year,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “Of course, if U.S. longer-term yields would rise, then you would see a modest reaction in Europe.”

Spain’s 10-year bond yield fell nine basis points, or 0.09 percentage point, this week to 1.44 percent as of the Friday 5 p.m. close in London. The 1.95 percent security due in April 2026 gained 0.8, or 8 euros per 1,000-euro face amount, to 104.755. The nation’s five-year note yield fell as low as 0.309 percent on March 30.

The yield on Italian 10-year bonds dropped eight basis points this week to 1.22 percent, while that on similar-maturity German bunds declined five basis points to 0.13 percent.

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