Bond yields slip below zero

Short-dated notes outperformed other euro-area government debt amid speculation the European Central Bank is moving closer to extending its stimulus measures, even as president Mario Draghi said more time is required to judge the need.

Dutch and Irish two-year note yields slid to records below zero, while a €4bn auction of German debt due in 2017 attracted the most demand in a year.

Yields on Spain’s two-year notes were little changed, while those on the nation’s 10-year bonds climbed from the lowest level in a month.

With eurozone inflation almost stagnant and data yesterday showing a slowdown in manufacturing and services, there’s growing speculation the ECB will expand its quantitative-easing programme.

At the same time, governing council member Ewald Nowotny said officials should be cautious about expanding QE, even though the economy’s not doing as well as they had hoped.

“It seems to be clearer now that the ECB has some work to do given the development of inflation expectations,” said Christoph Kutt, head of rates strategy and sovereign credit at DZ Bank AG.

“Hence, the short end remains firmly anchored.” Spain’s 10-year yield rose one basis point, or 0.01 percentage point, to 1.97% at the 5pm close in London, after climbing as much as three basis points earlier. The 2.15% security, due in October 2025, declined 0.12, or €1.20 per €1,000 face amount, to 101.655.

The nation’s two-year note yield was little changed at 0.16%, meaning the extra yield investors demand to hold the 10-year securities instead widened to 181 basis points.

Germany’s sale of the two-year securities drew bids for 2.44 times the debt allocated, the most since July 2014. The nation sold the notes at an average yield of minus 0.26%.


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