LONDON: German government bond yields hit a three-week high late on Tuesday after an upbeat ECB lending survey silenced some calls for the central bank to step up its trillion-euro bond-buying programme.
Credit standards for euro zone companies eased more than expected in the third quarter of 2015 as banks awash with central bank money competed for customers, the ECB's survey showed.
That helped offset a bigger-than-expected decline in German producer prices earlier in the day.
With consumer prices also falling, the pressure on the ECB to ease monetary policy further by boosting its quantitative easing scheme is high, but the lending survey may have won it some breathing space.
"For the ECB this is a key piece of information, which the hawks will use perhaps to say 'wait a minute' to the doves who want to beef up QE," said Martin van Vliet, senior rate strategist at ING.
German 10-year yields - the euro zone benchmark - were up 7 basis points on the day at 0.637 percent, the highest level seen since Oct. 20.
They fell as low as 0.55 percent after the earlier producer prices data.
All other euro zone bonds were up between 4-7 bps.
The ECB's Governing Council meets in Malta on Thursday and markets expect President Mario Draghi to highlight a willingness to act to boost inflation, but stop short of adjusting its current 60 billion euros a month of asset purchases.
"QE continues to feed through the real economy," said Christel Aranda-Hassel, director, European Economics at Credit Suisse.
"The ECB can steer clear from providing additional measures just yet." Nevertheless, the ECB is widely expected to act in coming months. Many predict a supercharged QE scheme to be announced in December.
Despite a rise of more than 10 basis points this month, the most closely watched barometer of the market's inflation expectations, the five-year, five-year breakeven forward, remains below the ECB's target of just below 2 percent.
The measure, which shows where markets expect 2025 forecasts to be in 2020, traded around 1.69 percent.
"Renewed global disinflationary pressures make it harder for the ECB to achieve its target not just this year or next year but in the medium term as well," said Nick Stamenkovic, bond strategist at RIA Capital Markets.
Bank of Spain Governor Luis Maria Linde became the latest policymaker to suggest the ECB might extend or modify its QE programme on Tuesday.
The ECB won't do that at its meeting on Thursday, according to all but one of 20 euro money market traders polled by Reuters on Monday. But 15 of them expected it to announce new measures at a later date.
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