German Bonds Fall First Time in 4 Days After OPEC Oil Output Cut

  • Ten-year bund yields climb from near lowest level since July
  • Germany’s annual inflation rate rises to 16-month high

German 10-year bonds declined for the first time in four days amid speculation that OPEC’s decision to cut crude production will help policy makers in their push to drive up consumer prices.

Benchmark 10-year bund yields rose from near an 11-week low after the Organization of Petroleum Exporting Countries surprisingly agreed at a meeting in Algiers Wednesday to reduce production for the first time since 2008. That decision triggered oil’s biggest jump in five months.

The European Central Bank’s extraordinary stimulus has failed to boost annual consumer-price growth toward its goal of just under 2 percent, fueling speculation that officials will extend their asset-purchase program beyond the scheduled expiry date in March.

OPEC’s decision “gives you a one-day boost but there’s plenty of questions about what sort of sustainability is going on in global inflation and what’s really changed,” said Richard Kelly, head of global strategy at Toronto Dominion Bank in London. “No one was expecting much of anything out of yesterday, so you have a bit of a reprice. Nothing long term changed in any of this.”

German 10-year bond yields rose three basis points, or 0.03 percentage point, to minus 0.12 percent as of 4:01 p.m. London time. The zero percent security due in August 2026 fell 0.296, or 2.96 euros per 1,000-euro ($1,123) face amount, to 101.149. The yield dropped to minus 0.16 percent on Tuesday, the lowest since July 12.

German Inflation

Data from Germany showed the country’s annual inflation rate increased last month to 0.5 percent. While that’s the highest since May 2015, it’s still just a quarter of the ECB’s goal for the 19-nation currency bloc. The reading was in line with the median forecast in a Bloomberg survey of economists.

The five-year, five-year forward inflation swap rate, a rolling gauge of inflation expectations in the euro region, was little changed at 1.34 percent. That’s still within 10 basis points higher of its record low reached on July 11, signaling the challenges the ECB still faces in meeting its inflation goal.

“We are in a situation where markets either don’t attach too much credibility to OPEC announcements, or they know that any action will be neutralized to a certain extent” by other producers, including the shale oil industry in the U.S., said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. “We are probably going to test the July all-time low for the 10-year bund before yields start going back toward zero.”

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