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German Yields Negative to 2021 as Investors Set for ECB Buying

Bloomberg, March 9, 2015

German government bonds advanced, pushing yields on securities due in as many six years further below zero, as investors prepared for the European Central Bank’s program of sovereign-debt purchases.

Anticipation of the 1.1 trillion-euro ($1.2 trillion) quantitative-easing plan, which is due to start on Monday, has already fueled a debt-market rally that sent yields across the euro region to record lows. The purchases, which are to include public and private debt, will be conducted in the secondary market by national central banks via existing counterparties.

“The ECB may well have to bid bonds aggressively to procure them from their holders, in particular to avoid question marks around the credibility of its QE delivery,” Cagdas Aksu, an analyst at Barclays Plc in London, wrote in an e-mailed report. Yields on the safest euro-area bonds “will remain suppressed,” he wrote. “We also expect the core-periphery spreads of Italy and Spain versus Germany to grind tighter in this environment.”

The yield on German 10-year bunds, Europe’s benchmark sovereign securities, fell three basis points, or 0.03 percentage point, to 0.37 percent at 8:26 a.m. London time. The 0.5 percent security due in February 2025, rose 0.265, or 2.65 euros per 1,000 euro face amount, to 101.305.

Germany’s six-year yield was at minus 0.03 percent. A negative yield means investors buying the securities would get less back than they paid if they held the bonds to maturity.

Yields have plunged across the region on concern the plan may lead to a scarcity of fixed-income assets. Seventy-seven of the 346 securities in the Bloomberg Eurozone Sovereign Bond Index have rates below zero, data compiled by Bloomberg show.

Off Bounds

ECB President Mario Draghi spurred demand for higher-yielding bonds last week when he said securities won’t be purchased under the debt-buying plan if their yields are below the ECB’s deposit rate of minus 0.2 percent.

Only bonds due between a minimum two years and a maximum 30 years and 364 days at the time of purchase will be eligible, and there are other limits on what can be bought to reach the target of 60 billion euros a month.

The trading desks of the euro-area’s national central banks do have some discretion over what they buy and when, the ECB said in a March 5 document.

Italy’s 10-year yield declined two basis points to 1.30 percent and Spain’s decreased two basis points to 1.28 percent.