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German Bonds Drop as Investors Await ECB Policy Meeting

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For a second day, German Bonds declines while investors determined if officials with the European Central Bank will add more stimulus at this week’s policy meeting.

Declines were also seen with 10-year securities for both Austria and France, as some inflation expectations increased boosted by yesterday’s rally in oil prices. This year, bonds have surged after negative deposit rates were introduced, asset backed securities bought, bonds covered, and long-term loans helped drive price growth by the European Central Bank.

On November 18, Mario Draghi, president of the Central Bank stated that it will begin to purchase sovereign debt if necessary. As far as Green bonds, this rose for a third day in a row.

In a statement from Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen, some people may be looking to remove some money from the table prior to the European Central Bank’s meeting. However, this week is too soon for the bank to do anything. In addition, there is significant focus on the price of oil and as such, this could all be connected to yesterday’s price increase.

The 10-year yield in Germany climbed two basis points of 0.02% point to 0.75%, following a three basis point climb yesterday. As far as the 1% bond coming due in August 2024, it declined 0.175 or 1.75 euros per 1,000 Euro face amount to 102.365, equivalent to $1,239 in US dollars. Yesterday, the rate fell to 0.69%, the lowest since 1989 when Bloomberg began gathering data.

On similar maturity Austrian debt, yield jumped three bases points to 0.89%, this after falling to a new record low yesterday of 0.826%. For 10-year rates in France, these increased three basis points to 1.02% after hitting a record low of 0.955% yesterday.

Highlighted by Draghi in August at a central banker’s symposium was the five-year, five-year forward inflation swap rate, which increased four basis points to 1.79%. This rate hit a record low on October 15, closing at 1.7225%. Since this past September, the rate has stayed below the European Central Bank’s inflation goal of just under 2%.

Yesterday, West Texas Intermediate crude surged 4.3% while today, it slid 1.4% to $68.05 per barrel.

In the euro area, volatility on Belgian bonds was the highest, just ahead of Austria and France, this according to measures of 10-year debt, a yield spread between two and 10-year securities and credit default swaps.

After dropping 37 basis points in the prior two days, 10-year yield for Greece fell 24 basis points to 7.79%. As of yesterday, it was reported that the nation is thinking about a role in the next aid deal with creditors for the International Monetary Fund.

The 10-year yield for Spain jumped two basis points to 1.86^, this after seeing a decline to 1.828%, the lowest since 1993 when Bloomberg began tracking this data. Equivalent yields for Italy changed little at 2.02%, after yesterday’s record low of 2.001%.

For securities in Germany, they earned 8.8% in 2014 as shown by Bloomberg World Bond Indexes while returns for Italy were 15% and 11% for France.

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David Goldstein

David is cool! :)

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