LONDON: Low-rated euro zone bond yields dipped on Monday as investors bet on European Central Bank will deliver more stimulus despite comments to the contrary from one of its policymakers.
Germany's Sabine Lautenschlaeger, a member of the ECB's six-strong executive board, said on Saturday that the hurdles to further stimulus were very high and purchases of sovereign debt, known as quantitative easing (QE), would not be positive.
But with data on Monday showing euro zone factory growth stalling, and an oil price slump exacerbating the weak inflation outlook, some like of Credit Suisse and BNP Paribas are calling for QE to be announced as early as this week.
The five-year five-year forward - the ECB's favourite measure of market inflation expectations - dropped 4 basis points on Monday to 1.74 percent.
"The ECB should keep inflation in check and they are failing to do that," said Intesa Sanpaolo strategist Sergio Capaldi. "Even the Germans cannot stand behind this firm opposition...If inflation goes down further, there is no other option left."
ECB Vice President Vitor Constancio said last week the bank could make a decision on QE early next year.
If the ECB starts buying sovereign bonds it is expected to knock down the premiums that the bloc's weaker sovereign states pay to borrow over top-rated Germany.
Italian 10-year yields - which offer some of the best opportunities for investors betting on QE - were 2 bps lower at 2.02 percent while Germany's were unchanged at 0.70 percent.
The difference between the two was at its tightest level since April 2011, around 130 bps, and Capaldi said it could tighten another 50 bps by October next year.
Spanish 10-year yields dipped 3 bps to 1.88 pct, while Portugal's dipped 4bps to 2.85 percent.
Greek bonds, the lowest-rated in the bloc, were on course for their biggest daily yield fall since mid-October - 38 bps lower at 8.15 pct. Euro zone finance ministers were to discuss conditions for providing Greece with credit when its current aid programme expires.
RBS strategist Marco Brancolini said alongside the ECB, the Swiss National Bank could also start buying top-rated euro zone government debt as it tries to cap any currency rise
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