Euro-Area Bonds Buoyed as ECB Holdings Approach 1 Trillion Euros

Updated on
  • Sovereign debt boosted by speculation QE program gets step-up
  • Yields on German bunds below zero level for a third month

As yields on euro-region government bonds hover close to historic lows, the European Central Bank’s unprecedented asset-buying program is approaching a milestone that keeps investors interested.

Holdings of public-sector debt under the institution’s quantitative-easing program have climbed to 990.8 billion euros ($1.1 trillion), it said Monday in its weekly statement. The bonds retain their attraction for investors on speculation policy makers will step up the stimulus plan, given that the region’s inflation rate remains well below the ECB’s goal of close to 2 percent. The QE program is scheduled to run until at least March 2017.

Yields on benchmark German 10-year bonds are set to end a third consecutive month below zero. Those on similar-maturity debt of Spain were close to a all-time low reached earlier in August, even as the country struggles for an eighth month to form a coalition government.

“There’s probably still a decent chance that they have to extend QE at some point next year,” said Richard Kelly, head of global strategy at Toronto Dominion Bank in London. “From the ECB’s perspective, inflation is generally coming in either in line, to even slightly better, to what they had forecast,” however “they’re not going to hit their mandate any time any time over the next 12 months.”

German 10-year bund yields were little changed at minus 0.091 percent as of 4:14 p.m. London time. The price of the zero percent security due in August 2026 was 100.92 percent of face value. The yield dropped below zero for the first time in June and has been under that threshold for the past six weeks.

Slower Inflation

Bunds stayed little changed as data showed German inflation unexpectedly slowed in August -- another sign that the ECB may choose to do more to meet its goal for price growth in the 19-nation euro zone. The institution’s Governing Council is next scheduled to set monetary policy on Sept. 8.

Spain’s 10-year bond yield rose one basis point to 0.95 percent, compared with its record-low of 0.910 percent set on Aug. 18.