Ramped-up ECB QE brings German 10-year yields closer to zero

LONDON: German 10-year Bund yields fell closer to zero on Monday as ramped-up bond purchases by the European Central Bank offset investor appetite for riskier assets following solid U.S. data.

The ECB expanded its quantitative easing programme by a third to 80 billion euros from April. Much of the additional buying is expected to be targeted at government bonds in the short term as plans to include corporate bonds in the scheme take effect later this quarter.

Together with expectations that redemptions will outweigh euro zone debt issuance this month and falling oil prices pushing down inflation expectations, the QE boost pulled yields lower across the region even after forecast-beating U.S. data.

Employment in the United States increased strongly in March, while another set of data suggested manufacturers were recovering after suffering from a strong dollar.

"The main driving force is the ECB's increased amount of public sector asset purchases and there's a very favourable supply-demand imbalance this month," RIA Capital Markets bond strategist Nick Stamenkovic said.

"Ten-year Bunds look like they're going to test the lows from last year."

Bund yields were down 3 basis points at 0.12 percent, the lowest since March 1. Their record low of 0.05 percent was hit about a year ago and was followed by one of the sharpest sell-offs in history.

There is no consensus that Bund yields could break new lows and turn negative, but such bets are popping out. Some analysts are wary that a new sell-off could occur as Bunds get expensive and liquidity conditions remain poor.

Most other euro zone bond yields were flat or slightly lower on Monday.

Some of the attention was back on Greece, after International Monetary Fund Managing Director Christine Lagarde denied on Sunday that IMF staff would push Athens closer to default as a negotiating tactic on a new Greek bailout deal, which she said was "still a good distance away."

But there was no significant impact from the Greek headlines on bond markets in early trade.