Eurozone bonds up on ECB outlook

After last week’s sell-off, eurozone government bonds rallied yesterday, pushing benchmark German 10-year yields down from the highest level since September.

Spanish securities led the advance after oil extended its decline below $40 a barrel, damping the inflation outlook and supporting fixed-income assets.

While the ECB’s decision last week to cut its deposit rate by 10 basis points and extend its €60bn a month asset-purchase programme by six months initially underwhelmed markets, ECB president Mario Draghi reassured investors the following day that further stimulus can be implemented if needed.

The ECB’s decision last week was a “massive disappointment”, said Jens Peter Soerensen, chief analyst at Danske Bank.

Investors are now focusing on the fact that “rates are not going to go high for a long time and the ECB will extend the programme”, he said.

German 10-year bund yields fell 10 basis points, or 0.1 percentage points, to 0.58%.

The yield climbed 22 basis points last week, the biggest increase since June 5 and touched 0.74% on Friday, the highest since September 18.

Similar-maturity Spanish bond yields dropped 11 basis points to 1.62% and those on French securities declined 10 basis points to 0.9%.

The ECB said it will meet its inflation goal of just under 2%, a level not seen since January 2013. Oil declined after OPEC effectively abandoned its long-time strategy of limiting production to control prices.

“The nail in the coffin was the Opec meeting” which led to “lower oil prices”, said Mr Soerensen, adding that “there will be plenty of stimulus going forward”.

Bloomberg