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German Yields Tumble Toward Zero Amid ECB Stimulus, Greece Jitters
“Draghi pledged to continue to metaphorically stand on the roof of the ECB building and shower euro bank notes down upon passersby.”
(*Oh Christ!)
German government bonds smashed through record highs Thursday, a day after the European Central Bankunderscored its commitment to buying vast amounts of top-rated debt to stimulate the region’s economic recovery.
By mid afternoon, the yield on the country’s 30-year bond had fallen below 0.47%, while the 10-year bond yield also hit a new record of just 0.073%. Germany’s yield curve remained firmly in negative territory right out to January 2024. Yields fall as bond prices rise.
German government debt is considered to be some of the lowest risk globally and therefore in particularly high demand for the ECB’s €60 billion-a-month ($64 billion) quantitative-easing program.
ECB President Mario Draghi at a regular news conference on Wednesday repeated that the ECB intends to buy up to €1 trillion of bonds until September 2016—as announced in January—restricting purchases to assets that yield more than the ECB’s deposit rate of minus 0.2%.
“Draghi pledged to continue to metaphorically stand on the roof of the ECB building and shower euro bank notes down upon passersby,” said Paul Donovan, an economist at UBS.
“Draghi pledged to continue to metaphorically stand on the roof of the ECB building and shower euro bank notes down upon passersby,” said Paul Donovan, an economist at UBS.
“It is not a forecast with a date attached, but we have in mind that this is achievable in the coming three to six months,” they wrote in a note.
A further force driving up German bond prices, was swelling uncertainty over the future of Greece in the eurozone.
The country’s Syriza-led government has been locked in negotiations with its international creditors since coming to power in late January, with progress slow. It needs a deal by this summer to secure billions of euros in bailout aid to avoid defaulting on its debts and potentially exiting the euro.
Compounding jitters, ratings agency Standard & Poor’s Corp. late Wednesday slashed its credit ratings on Greek debt deeper into junk territory, saying it expects the country’s debt and financial commitments to be unsustainable without deep economic reform.
Yields on the country’s two-year bonds soared more than three percentage points on the day to almost 27%, their highest since being issued and a huge move even for notoriously volatile Greek debt. Yields rise when prices fall.
Meanwhile, yields on the country’s 10-year debt advanced by a little more than one percentage point to 12.6%–their highest in over two years.
A so-called inverted curve, where shorter-dated debt yields more than longer dated, indicates that investors see a heightened chance of default.
“Overall the probability of a Greek exit remains higher now than it ever was,” Barclays economists wrote in a note.
So far this year, Athens’ main stock index has declined around 10%, making it one of the world’s worst performing indexes.
The Stoxx Europe 600 equity index declined around 0.6%, having Wednesday closed a shade under its all-time high.
In commodity markets, Brent crude was 1.2% lower on the day at $62.53 a barrel. Gold was 0.3% higher on the day at $1,205 per troy ounce. In the U.S., the S&P 500 was seen opening 0.3% lower. Futures, however, don't necessarily reflect moves after the opening bell.
Source: http://www.wsj.com/articles/german-bonds-hit-new-highs-amid-ecb-stimulus-greece-jitters-1429170086
