Europe Stay updated with Business News, Pakistan news, Current world news and latest world news with Business Recorder.. http://www.brecorder.com/markets/fixed-income/europe.html Wed, 04 May 2016 05:58:08 +0000 Joomla! 1.5 - Open Source Content Management en-gb German bond yields edge down from six-week highs http://www.brecorder.com/markets/fixed-income/europe/293480-german-bond-yields-edge-down-from-six-week-highs.html http://www.brecorder.com/markets/fixed-income/europe/293480-german-bond-yields-edge-down-from-six-week-highs.html

imageLONDON: German bond yields edged down in holiday-thinned trading on Monday, regaining some of the ground lost last week on the anniversary of one of the biggest Bund routs in history.

Retreating oil prices and unconvincing economic data from the euro zone and the world's second largest economy China supported demand for the European benchmark.

But holidays in Europe's financial capital London and across Asia kept trading volumes low. Less than 300,000 Bund future contracts traded by 1530 GMT, a fraction of last week's 750,000 daily average.

Ten-year yields fell 1 basis point to 0.28 percent , steadying after Friday's 6 bps rise which pushed yields to within a whisker of six-week highs.

Bund yields have risen for three consecutive weeks, their worst run since a sell-off a year ago when yields shot from a 0.05 percent record low to over 1 percent in a matter of weeks.

But strategists are not expecting a similar blow-out this time around. "The initial parallels with the stunning sell-off exactly one year ago cannot be dismissed but we see markets much better protected this time around," Commerzbank strategist Rainer Guntermann said.

Oil prices - which often drive inflation expectations and bond yields - fell 2 percent on Monday as data showing higher Middle East oil production and record hedge fund buying sparked profit-taking.

The challenging outlook for global growth also supported demand for safe haven Bunds. Data showed euro zone factories did slightly better in April, with output not losing as much momentum as initially thought but growth in activity remained weak despite the second-deepest price-cutting since early 2010.

That came on top of a survey on Sunday showing that activity in China's manufacturing sector expanded only marginally, raising doubts about the sustainability of a recent pick-up in the economy.

Monday's fall in yields would have been deeper had it not been for data that showed U.S manufacturing rose for a second straight month in April, further evidence of economic strength that could support an interest rate rise from the United States next month.

Dallas Federal Reserve President Robert Kaplan said he could back a rise in rates as soon as June or July if US economic data firms up as he expects, comments that triggered selling in bonds on Friday and pushed yields higher.

Elsewhere, Portuguese yields fell 6 basis points to 2.96 percent after rating agency DBRS maintained the country's only investment grade rating on Friday, ensuring that its bonds remain eligible for European Central Bank bond buying.

Copyright Reuters, 2016

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s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui) Europe Mon, 02 May 2016 17:01:02 +0000
German yields come down from six-week highs, sell-off fears ease http://www.brecorder.com/markets/fixed-income/europe/293381-german-yields-come-down-from-six-week-highs-sell-off-fears-ease.html http://www.brecorder.com/markets/fixed-income/europe/293381-german-yields-come-down-from-six-week-highs-sell-off-fears-ease.html imageLONDON: German bond yields fell in holiday-thinned trading on Monday, regaining some of the ground lost last week on the anniversary of one of the biggest Bund routs in history.

Retreating oil prices and unconvincing economic data from the euro zone and the world's second largest economy China supported demand for the European benchmark.

But holidays in Europe's financial capital London and across Asia kept trading volumes low. Less than 100,000 Bund future contracts traded by 1030 GMT, a fraction of last week's 750,000 daily average.

Ten-year yields fell 4 basis points to 0.25 percent , steadying after Friday's 6 bps rise which pushed yields to within a whisker of six-week highs.

Bund yields have risen for three consecutive weeks, their worst run since a sell-off a year ago when yields shot from a 0.05 percent record low to over 1 percent in a matter of weeks.

But strategists are not expecting a similar blow-out this time around.

"The initial parallels with the stunning sell-off exactly one year ago cannot be dismissed but we see markets much better protected this time around," Commerzbank strategist Rainer Guntermann said.

Oil prices - which often drive inflation expectations and bond yields - retreated from 2016 highs on Monday as rising production in the Middle East outweighed a decline in U.S. output and a sliding dollar.

The challenging outlook for global growth also supported demand for safe haven Bunds.

Data showed euro zone factories did slightly better in April, with output not losing as much momentum as initially thought but growth in activity remained weak despite the second-deepest price-cutting since early 2010.

That came on top of a survey on Sunday showing that activity in China's manufacturing sector expanded only marginally, raising doubts about the sustainability of a recent pick-up in the economy.

Of the other readings due Monday, investors will be closely watching manufacturing data from the United States which could firm support for an interest rate rise next month.

Dallas Federal Reserve President Robert Kaplan said he could back a rise in rates as soon as June or July if U.S. economic data firms up as he expects, comments that triggered selling in bonds on Friday and pushed yields higher.

"The only stimuli that could move the markets are likely to come from the ISM tracking the US manufacturing sector, due out in the afternoon: we see this consolidating in the wake of the marked brightening in sentiment noted in the previous month," DZ Bank strategist Ren? Albrecht said.

Elsewhere, Portuguese yields fell 6 basis points to 2.96 percent after rating agency DBRS maintained the country's only investment grade rating on Friday, ensuring that its bonds remain eligible for European Central Bank bond buying.

Copyright Reuters, 2016

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imad_kueconomist@yahoo.com (Imaduddin) Europe Mon, 02 May 2016 12:44:27 +0000
Romania aims to sell domestic debt worth 3.3bn lei in May http://www.brecorder.com/markets/fixed-income/europe/292968-romania-aims-to-sell-domestic-debt-worth-33bn-lei-in-may.html http://www.brecorder.com/markets/fixed-income/europe/292968-romania-aims-to-sell-domestic-debt-worth-33bn-lei-in-may.html imageBUCHAREST: Romania aims to sell 3.3 billion lei ($838.39 million) worth of leu currency bills and bonds in May and an additional 345 million lei in non-competitive offers, the finance ministry said on Thursday.

Debt managers issued debt worth 3.86 billion lei in April.

In May, they have scheduled one tender worth 1 billion lei for one-year treasury bills, and six bond auctions with outstanding maturities ranging between one and seven years.

So far this year, the ministry has sold 17.82 billion lei and 775 million euros worth of domestic debt, and has tapped 1.25 billion euros from foreign markets.

Copyright Reuters, 2016

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s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui) Europe Thu, 28 Apr 2016 13:18:51 +0000
Greek bond yields rise as reform talks delayed http://www.brecorder.com/markets/fixed-income/europe/292768-greek-bond-yields-rise-as-reform-talks-delayed.html http://www.brecorder.com/markets/fixed-income/europe/292768-greek-bond-yields-rise-as-reform-talks-delayed.html imageLONDON: Greek government bond yields rose sharply and the country's stock market came under pressure on Wednesday, following news that a meeting on Greek reforms has been delayed.

Most euro zone bond yields were lower, with the overall tone in markets cautious as two risk events loomed large - a Federal Reserve interest rate decision later on Wednesday and a Bank of Japan meeting on Thursday.

Euro zone finance ministers will not meet on Thursday and need more time to discuss two sets of Greek reforms that would unlock new loans, the office of the Eurogroup said late on Tuesday.

The meeting was a possibility because Greece and its lenders aim to reach an agreement on a package of contingent measures that would be implemented only if needed, to make sure the country reaches agreed fiscal targets in 2018.

"It is the latest twist in a very difficult course," said Chris Scicluna, head of economic research at Daiwa Capital Markets.

Euro zone finance ministers should meet on Greece within days to avoid renewed uncertainty over the country's ability to finance itself, European Council President Donald Tusk said on Wednesday.

Greece's 10-year bond yield rose more than 50 basis points to 9.14 percent, on track for its biggest daily rise since February 8.

The country's benchmark ATG equity index fell almost 4 percent, underperforming a 0.2 percent gain on the broader, pan-European STOXX 600 index.

NEW ELECTIONS IN SPAIN

Spanish bonds briefly came under pressure as fresh elections appeared likely after a final round of talks to form a coalition government failed.

Acknowledging the failure of political parties to break a deadlock triggered by inconclusive elections in December, King Felipe on Tuesday said he would not propose any new candidate for Prime Minister, thus paving the way for the new vote on June 26.

Opinion polls suggest new elections would do little to resolve the impasse.

"It's not a surprise that we'll see new elections after the lengthy and tedious negotiations to form a government," said DZ Bank strategist Christian Lenk. "The problem markets have not really digested is that polls point to a similar election outcome to what we saw in December."

Spain's benchmark 10-year bond yield fell 3 bps to 1.61 percent, reversing an initial rise. Analysts said a firmer tone in stock markets helped boost sentiment towards peripheral bond markets in general.

Most euro zone bond yields were slightly lower although moves were limited ahead of the Fed's rate decision.

The U.S. central bank is expected to keep interest rates unchanged as it monitors the impact from weakening global growth but may seek to signal it is determined to resume policy tightening this year.

"If the Fed tweaks its statement that could have some additional negative impact on bond markets," said KBC rate strategist Mathias van der Jeugt.

Elsewhere, Germany sold about 800 million euros of 30-year bonds.

Copyright Reuters, 2016

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imad_kueconomist@yahoo.com (Imaduddin) Europe Wed, 27 Apr 2016 12:47:30 +0000
Syndication of ultra-long UK gilt draws second-highest demand ever http://www.brecorder.com/markets/fixed-income/europe/292563-syndication-of-ultra-long-uk-gilt-draws-second-highest-demand-ever.html http://www.brecorder.com/markets/fixed-income/europe/292563-syndication-of-ultra-long-uk-gilt-draws-second-highest-demand-ever.html imageLONDON: Britain's sale of an ultra-long bond drew the second-highest demand ever for a launch via syndication thanks to interest from pension funds, despite financial market volatility ahead of a referendum on the country's membership of the European Union.

Britain's Debt Management Office sold 4.75 billion pounds ($6.95 billion) of the 2.5 percent July 2065 bond at an average yield of 2.2905 percent.

The sale attracted orders worth 21.3 billion pounds and will increase the total amount of the bond in issue to 9.5 billion pounds, following record demand of 21.9 billion pounds at the bond's launch in October 2015.

Thirty-year gilt yields rose to a three-month high of 2.476 percent as investors absorbed the issue, leading to price falls across maturities in the gilt market, which was also under pressure from falls in the price of German debt.

"There remains significant interest in acquiring ultra-long gilts in the context of ongoing demand from the pensions industry to hedge liabilities," said Jo Whelan, deputy head of the DMO.

Whelan said the sale result illustrated the underlying strength of the gilt market, with demand exceeding 21 billion pounds in just one hour.

"While international capital markets have been somewhat volatile in the recent past, our syndicated offering was absorbed smoothly and efficiently by the gilt market."

Britain votes on whether to exit the EU on June 23 - a possibility that has unsettled financial markets in recent months and which many economists see dealing a hit to the economy, at least in the short-term.

The DMO has curbed the size of bond auctions this year to encourage stronger bidding from banks, but has kept up the large size of syndications, which do not rely on dealers buying large sums of gilts to temporarily hold on their own account.

At about 1530 GMT 30-year yields were up 6.6 basis points at 2.47 percent, 10-year yields were 5.5 bps higher at 1.67 percent and five-year yields rose 5.6 bps to 1.03 percent.

The move mirrored losses in US and German bond markets, with supply on both sides of the Atlantic helping to lift benchmark US and German yields to or close to five-week highs.

Marc Ostwald, a fixed income strategist at ADM Investor Services, said the results were particularly good given the various risk events this week, including gross domestic product releases from Britain and the United States and central bank decisions by the US Federal Reserve and the Bank of Japan.

"I would say they have managed to sell this at a very good level," he said.

Copyright Reuters, 2016

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imad_kueconomist@yahoo.com (Imaduddin) Europe Tue, 26 Apr 2016 15:54:49 +0000
Euro zone's low yields finally turning foreign investors away http://www.brecorder.com/markets/fixed-income/europe/292507-euro-zones-low-yields-finally-turning-foreign-investors-away.html http://www.brecorder.com/markets/fixed-income/europe/292507-euro-zones-low-yields-finally-turning-foreign-investors-away.html imageLONDON: Foreign investors have been selling long-dated euro zone bonds on a scale not seen in seven months, a sign of growing reluctance to hold debt with an ultra-low or negative yield.

Overseas holders sold a net 42 billion euros worth of long-dated government bonds in February, according to ECB balance of payments data.

Societe Generale head of fixed income and forex strategy Vincent Chaigneau blamed the change in sentiment on low yields.

"Once we got past the sovereign debt crisis in Europe, you saw quite a lot of inflows into euro government bonds from foreign investors," he said. "But that appeal has to a large extent vanished, especially as yields have continued to fall and in many cases turned negative."

The selling indicates investors are not heavily positioned for further bond gains, lowering the risk of a sell-off similar to that seen a year ago, when Bund yields jumped to above 1 percent from record lows of 0.05 percent within weeks.

"The positioning of foreign investors is probably much lighter, so the risk of a Bund-led sell-off like we had last year is limited," said Chaigneau.

However, analysts said foreign selling suggested an outperformance of German bonds against their U.S. peers might slow. Ten-year U.S. Treasuries yield 162 basis points more than 10-year Bunds, up from a February low of 142 bps.

It might also help weaken the euro, bringing relief to the European Central Bank, since a weaker currency lowers the cost of imports and helps stoke the inflation the central bank has been seeking to stimulate through quantitative easing.

JUST TOO LOW

First-quarter data from Lipper says investment funds sold euro zone government bonds worth 2.1 billion euros over a three-month period and 3.4 billion euros over six months.

"In general, what we are noticing is that lower-yielding investments are being challenged and that without the current QE programme (principally sovereign purchases) we probably would see an upturn in euro sovereign yields," said Nicolas Forest, global head of fixed income management at Candriam Investors Group.

Germany's 10-year government bond yield has crept up from a one-year low of 0.075 percent on April 11. But at 0.27 percent, it remains some 30 bps below where it ended 2015, pinned down by the ECB's 1.5 trillion-euro asset purchase programme.

German yields out to seven years are negative, meaning investors effectively pay to lend to Berlin.

Recent outflows from European bonds were driven by a recovery in risk appetite, ING head of investment grade debt strategy Padhraic Garvey said, and by interest in corporate debt in light of plans by the ECB to include top-rated, euro-denominated bonds from non-financial firms in its QE programme.

For others, there was a feeling of being squeezed out by the ECB.

"Some investors have cited the fact that with the ECB's large participation in the markets, there is a feeling that the markets are artificially inflated and they feel crowded out from investing in European government bonds," said Zoeb Sachee, head of European government bond trading at Citi.

Copyright Reuters, 2016

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imad_kueconomist@yahoo.com (Imaduddin) Europe Tue, 26 Apr 2016 12:57:40 +0000
Bund yields touch five-week high as ESM supply weighs http://www.brecorder.com/markets/fixed-income/europe/292269-bund-yields-touch-five-week-high-as-esm-supply-weighs.html http://www.brecorder.com/markets/fixed-income/europe/292269-bund-yields-touch-five-week-high-as-esm-supply-weighs.html imageLONDON: German Bund yields hit a five-week high on Monday, reversing early falls, as investors anticipated a new bond issue from the European Stability Mechanism (ESM), the euro zone's crisis resolution fund.

The ESM on Monday mandated banks for a 16-year benchmark due on 3 May 2032, IFR reported.

"Reports that banks are syndicating a 16-year benchmark for ESM is pushing bond yields higher," said Mizuho strategist Peter Chatwell. "But markets are thin and there doesn't appear to a fundamental driver for yields to push higher."

Germany's 10-year Bund yield rose more than 3 basis points to 0.28 percent. Yields across the euro zone were 1-5 bps higher.

Earlier, bond yields fell after a survey showing German business morale unexpectedly fell in April reinforced expectations that the European Central Bank's ultra-loose monetary policy would stay in place for some time.

The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, inched down to 106.6 in April from 106.7 in March. The reading compared with the Reuters consensus forecast for a rise to 107.0.

Bund yields ended Friday with their biggest weekly rise since last December after a rebound in oil prices and a wait-and-see message from the European Central Bank at its policy meeting on Thursday.

Focus turned to the U.S. Federal Reserve, which meets on Wednesday, and a Bank of Japan meeting on Thursday.

There is talk that Japan could push deeper into negative interest rate territory, while there is intense interest in where the Fed stands on another rate hike.

Bloomberg reported on Friday that the Bank of Japan is considering further easing monetary policy by applying negative rates to its lending for financial institutions.

"It seems like there are some expectations for BOJ easing come Thursday," said Rabobank fixed income strategist Lyn Graham-Taylor. "It is interesting because the last time the BOJ eased, it was seen as a worrying sign for global markets."

Elsewhere, Austrian government bonds showed little immediate reaction to Sunday's presidential election.

Austria's far-right won more than a third of the vote in the election and will face an independent in next month's run-off, squeezing out the country's two main parties from the post for the first time.

"The result is another instance of an anti-establishment, anti-EU party winning support; this may be a focus for investors," UBS analysts said in a note.

Copyright Reuters, 2016

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imad_kueconomist@yahoo.com (Imaduddin) Europe Mon, 25 Apr 2016 14:07:34 +0000
German Bund yields hold above 0.2pc as market nurses losses http://www.brecorder.com/markets/fixed-income/europe/292253-german-bund-yields-hold-above-02pc-as-market-nurses-losses.html http://www.brecorder.com/markets/fixed-income/europe/292253-german-bund-yields-hold-above-02pc-as-market-nurses-losses.html imageLONDON: German Bund yields held above 0.2 percent on Monday, hovering near recent one-month highs amid some nervousness ahead of this week's central bank meetings in the US and Japan.

Bund yields ended Friday with their biggest weekly rise since last December after a rebound in oil prices and a wait-and-see message from the European Central Bank at a policy meeting on Thursday.

Focus now turned to the US Federal Reserve, which meets on Wednesday, and a Bank of Japan meeting on Thursday.

The Fed is expected to hold rates steady, but may tweak its description of the US economic outlook to reflect more benign conditions, leaving the path open for future rate rises.

The Bank of Japan is likely to cut its price forecasts and debate whether a strong yen, weak global demand and soft consumption have hurt inflation expectations enough to warrant another blow of stimulus.

Bloomberg reported on Friday that the BOJ is considering further easing monetary policy by applying negative rates to its lending for financial institutions.

"It seems like there are some expectations for BOJ easing come Thursday," said Rabobank fixed income strategist Lyn Graham-Taylor. "It is interesting because the last time the BOJ eased it was seen as a worrying sign for global markets."

The yield on 10-year German bonds, the benchmark in the euro zone, was steady at 0.23 percent and within sight of one-month highs hit last week at 0.24 percent.

Bund yields have moved further away from a low of 0.075 percent hit earlier this month just as the April 29th anniversary of last year's sharp sell-off draws near.

After failing to break below zero, Bund yields jumped above 1 percent last year in a matter of weeks, causing serious damage to investors, who at the time were almost unanimously positioned for a further fall in German borrowing costs.

Elsewhere, Austrian government bonds showed little immediate reaction to Sunday's presidential election.

Austria's far right won more than a third of the vote in the election and will face an independent in next month's run-off, dumping out the country's two main parties from the post for the first time.

While the presidency is largely a ceremonial role, the fact that neither of the main ruling parties will be battling for the post on May 22 marks a major change in Austrian politics - as well as the rising role of the far right in Europe.

"The results are unlikely to trigger a significant reaction in euro zone government bond markets this morning but illustrate the political risks facing Europe," said Antoine Bouvet, rates strategist at Mizuho, said in a note.

Copyright Reuters, 2016

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parvezjabri@yahoo.com (Parvez Jabri) Europe Mon, 25 Apr 2016 10:04:19 +0000
Bund yields rise above 0.20 percent as oil price hits five-month high http://www.brecorder.com/markets/fixed-income/europe/291724-bund-yields-rise-above-020-percent-as-oil-price-hits-five-month-high.html http://www.brecorder.com/markets/fixed-income/europe/291724-bund-yields-rise-above-020-percent-as-oil-price-hits-five-month-high.html imageLONDON: German 10-year Bund yields rose above 0.20 percent for the first time in a month on Thursday as oil prices jumped to a five-month high, supporting the outlook for inflation and investor appetite for riskier assets.

The European Central Bank is widely expected to refrain from further economic stimulus at its policy meeting on Thursday, providing little additional support for bonds.

German yields - the bloc's benchmark - rose 6 basis points to 0.21 percent, pulling away from last April's 0.05 percent record lows, before one of the biggest-ever Bund sell-offs took yields above 1 percent in a matter of weeks.

The approaching anniversary of that sell-off, which started at the end of April 2015 and quickly snowballed in May, is keeping investors wary of making firm bets on Bunds.

Crude oil prices rose to a five-month high on Thursday after the International Energy Agency said that 2016 would see the biggest decline in non-OPEC production in a generation, helping rebalance a market dogged by oversupply.

The bond market is tracking developments in oil prices because of their impact on inflation and worries that cheap crude can hurt the energy sector and its lenders, taking a toll on the global economy.

"The oil price has been adopted as a gauge of global growth," Intesa SanPaolo fixed income strategist Sergio Capaldi said.

Although higher oil prices support inflation expectations, the widely watched five-year, five-year breakeven forwards - which show where markets expect 2026 inflation forecasts to be in 2021 - have hugged 1.4 percent in recent weeks, far below the ECB's target of near 2 percent.

The main reason is the strength of the euro, which is firmer than it was before last month's ECB meeting, when it cut interest rates and increased its asset purchases by a third.

Thursday's meeting is expected to be more talk than action, but the German newspaper Die Zeit, citing anonymous euro zone central bank sources, reported that some ECB members were in favour of extending quantitative easing to equities.

Copyright Reuters, 2016

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imad_kueconomist@yahoo.com (Imaduddin) Europe Thu, 21 Apr 2016 14:32:04 +0000
Euro zone yields rise as oil price hits five-month high http://www.brecorder.com/markets/fixed-income/europe/291673-euro-zone-yields-rise-as-oil-price-hits-five-month-high.html http://www.brecorder.com/markets/fixed-income/europe/291673-euro-zone-yields-rise-as-oil-price-hits-five-month-high.html imageLONDON: Euro zone bond yields rose on Thursday as oil prices jumped to a five-month high, supporting the outlook for inflation, and as investors turned to riskier assets such as stocks.

The European Central Bank is widely expected to refrain from further economic stimulus at its policy meeting on Thursday, providing little additional support for bond yields.

German 10-year yields -- the bloc's benchmark -- rose 3 basis points to 0.18 percent, pulling away from 0.05 percent record lows. European stocks edged up taking their cue from Asian shares which earlier reached 5-1/2-month highs and Wall Street which is just shy of record highs.

A recovery in oil prices has helped shore up concerns about a slowdown in the global economy and the outlook for inflation, sparking a rally in world equity markets.

Crude prices rose to a five-month high on Thursday as the International Energy Agency (IEA) said that 2016 would see the biggest fall in non-OPEC production in a generation, helping rebalance a market that has been dogged by oversupply.

"In recent weeks, oil has been an indicator for the risk sentiment in general and has driven equities up. Bonds, in general, are trading a bit softer on that trend," Commerzbank strategist Rainer Guntermann said.

After new easing measures were unveiled by the ECB last month, Thursday's meeting is expected to be more talk than action.

President Mario Draghi is likely to drive home the case for ultra-loose monetary policy on Thursday, hitting back after a barrage of criticism from German officials who dispute the bank's recipe for tackling the euro zone's economic malaise.

But while March's stimulus package has supported sentiment and financial conditions, it has failed to weaken the euro or lift long-term inflation expectations.

The five-year, five-year euro zone breakeven rate , a key market-based expectation watched by the ECB, dipped below 1.40 percent for the first time in six weeks on Wednesday and is well below the 1.49 percent when the ECB announced its March package.

It is not surprising then that focus is shifting towards possible next steps for ECB easing. Citing anonymous euro zone central bank sources, German daily newspaper 'Die Zeit' reported on Thursday that some ECB members were in favour of extending quantitative easing to equities.

Copyright Reuters, 2016

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parvezjabri@yahoo.com (Parvez Jabri) Europe Thu, 21 Apr 2016 08:41:59 +0000
Bund yields fall with long-term inflation measure back below 1.40pc http://www.brecorder.com/markets/fixed-income/europe/291566-bund-yields-fall-with-long-term-inflation-measure-back-below-140pc.html http://www.brecorder.com/markets/fixed-income/europe/291566-bund-yields-fall-with-long-term-inflation-measure-back-below-140pc.html imageLONDON: German bond yields fell on Wednesday, hauled down by a drop in long-term inflation expectations and relief that a sale of 10-year debt went smoothly.

Significant market moves were capped a day before a European Central Bank meeting, even though investors do not expect any new hints of easing following last month's stimulus measures.

Germany sold about 3.2 billion euros of bonds in a top-up of its 0.50 percent 10-year Bund at an average yield of 0.15 percent, half the previous auction's yield.

A bid-to-cover ratio of 1.4 suggested solid demand for Bunds even with yields at low levels, analysts said. The ECB's asset purchases remained a key supporting factor at recent government bond sales.

The sale comes off the back of a 6.5 billion euro issue of an Italian 20-year bonds on Tuesday and auctions from Belgium and Slovakia on Monday. Analysts said the fall in yields was partly due to relief that supply was out of the way.

"Bund auctions are usually an accident-prone event, but today there are no signs of any risks whatsoever and that's certainly encouraging heading into the ECB meeting," said David Schnautz, a Commerzbank interest rate strategist.

Germany's 10-year Bund yield fell 3 basis points to 0.15 percent, within sight of the one-year low of 0.075 percent hit earlier this month. Other euro zone bond yields, with the exception of Portugal's, were 1-2 bps lower.

The ECB's favourite market measure of long-term inflation expectations -- the five-year, five-year forward rate -- fell back below 1.40 percent for the first time in six weeks . The central bank's target inflation rate is close to 2 percent.

Oil prices, which have slid more than 60 percent since mid-2014, have pushed down inflation expectations in the euro zone and in turn depressed bond yields.

Brent crude futures, the international benchmark, fell 1.5 percent in early trading after Kuwaiti workers ended a strike that had cut production from the Middle Eastern country, but closed slightly up on the day as the United States reported smaller-than-expected stockpiles.

A euro zone bank lending survey also refocused market attention on Thursday's ECB meeting.

The ECB's asset-purchase programme is hurting bank profits while its contribution to easing lending conditions is small or diminishing, according to an ECB survey of lenders released on Tuesday.

"Given the results of the bank lending survey, the ECB will stress that they think their measures are working and will stand ready to act again if needed," Lenz said.

Copyright Reuters, 2016

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imad_kueconomist@yahoo.com (Imaduddin) Europe Wed, 20 Apr 2016 16:31:25 +0000