BLBG: German Bonds Advance After Draghi Says Inflation Risks Are Low
German government bonds rose, pushing 10-year yields to the lowest in nine weeks, after European Central Bank President Mario Draghi said inflation risks were “very low over the medium term.”
Two-year yields dropped the most since August as German industrial production slumped in September more than economists predicted and the European Commission halved its 2013 growth forecast for the country. Greek 10-year bonds advanced for a third day as Prime Minister Antonis Samaras prepared to seek parliamentary approval for austerity measures needed to unlock a tranche of bailout funds.
“Saying the outlook is weaker than many people may have thought and inflation risks are not as serious means investors don’t need to fear an imminent sell-off in bunds,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “This puts you back into risk-off mode and then you would be looking to hold the bonds of the economically strongest credits, like bunds.”
Germany’s 10-year yield fell six basis points, or 0.06 percentage point, to 1.38 percent at 12:51 p.m. in London, the lowest level since Sept. 4. The 1.5 percent bund maturing in September 2022 gained 0.555 or 5.55 euros per 1,000-euro ($1,276) face amount, to 101.11.
Two-year yields fell four basis points to minus 0.041 percent, the biggest decline since Aug. 30.
“The weak overall economic situation, combined with slow money growth, means that the risks of inflation are currently very low over,” Draghi said in a speech in Frankfurt. “Our interventions will not change this outlook.” The central bank is due to decide on interest rates tomorrow.
German bonds returned 3.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish securities gained 3 percent, while Italy’s earned 18 percent.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
