German Bunds Rally After ECB Qe Boost Kicks In

German Bunds Rally After ECB Qe Boost Kicks In

4 April 2016, 12:51
Roberto Jacobs
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German Bunds Rally After ECB Qe Boost Kicks In

The German 10-year bund prices rallied for 4 consecutive weeks on Monday after the European Central Bank’s expanded bond buying programme kicked in on Friday. Also, slide in oil prices and a sharp break lower in the Eurostoxx 50 index below 3000 on Friday supported bund prices. The benchmark 10 year bonds yield dipped 1 bps to 0.13 pct and 3-year bond yield fell to -0.47 pct.

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. The regions bonds have also been boosted by a double dovish turn from the US Federal Reserve, which has helped send them on a 4-week rally. On the other hand, recent declining inflation expectations have also helped bunds prices.

Brent crude is down 1 pct at a month low of $38.32. Declines in oil prices have tended to give German Bunds a lift by increasing risk aversion and pushing down inflation expectations. For much of this year, appetite for risk has been dictated by oil prices, with global stocks plunging early in the year as oil prices dropped, before rebounding sharply as oil prices rose more than 50 pct from January to March.

"Ten-year Bunds look like they're going to test the lows from last year", said RIA Capital Markets bond strategist Nick Stamenkovic.

ECB executive board member Praet said that the ECB will continue to react 'forcefully' to low inflation if needed. Prolonged low inflation is increasing the risk that inflation undershooting may become persistent.

We foresee that the ECB could go for more rate cuts and QE inflation fail to improve over the coming months.

Peripheral euro zone yields are also faring relatively well in the European session, with Portuguese 10-year yields down 3bps to a 2-week low of 2.73 pct.

The material has been provided by InstaForex Company - www.instaforex.com

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