Bonds in Europe hit record, stocks gain on euro stim­u­lus signs

The Financial Daily - - NATIONAL -

LON­DON: Ger­man and French govern­ment bonds leapt Thurs­day to record peaks on the prospect of quan­ti­ta­tive eas­ing in the strug­gling eu­ro­zone, while stocks also pushed higher.

The in­ter­est rate or yield on Ger­many's 10-year bond sank to 0.709 per­cent, be­low the pre­vi­ous all time-low of 0.719 per­cent that was hit last month.

France's 10-year note fell to an his­toric low of 0.997 per­cent from 1.051 per­cent on Wednesday. Bond yields and prices move in­versely.

The Euro­pean sin­gle cur­rency dropped to $1.2479 from $1.2506 late in New York on Wednesday.

"In an en­vi­ron­ment of plen­ti­ful liq­uid­ity in the global mar­ket, in­vestors are driv­ing down bond yields as in­vestors an­tic­i­pate fur­ther eas­ing by the ECB," said Nick Sta­menkovic, strate­gist at RIA Cap­i­tal Mar­kets.

"Eq­ui­ties are also ral­ly­ing, aided by rising hopes that a weaker euro will boost earn­ings and euro area ac­tiv­ity."

The Ger­man 10-year bond -the Bund -- is the eu­ro­zone's key bench­mark be­cause Ger­many ben­e­fits from the most con­fi­dence among in­vestors.

Stocks also rose in af­ter trad­ing, with Lon­don's FTSE 100 in­dex up 0.22 per­cent at 6,744.06 points, while the Paris CAC 40 gained 0.41 per­cent to 4,391.49 points af­ter an ear­lier tech­ni­cal prob­lem.

Frank­furt's bench­mark DAX 30 jumped 0.66 per­cent to 9,980.97 points com­pared with Wednesday's clos­ing value.

Frank­furt stocks were par­tic­u­larly boosted be­cause, un­der a bond-buy­ing plan, the Euro­pean Cen­tral Bank would be re­quired to pur­chase Ger­man bunds in pro­por­tion to Ger­many's near 18-per­cent con­tri­bu­tion to the ECB's cap­i­tal base.

The ECB's deputy pres­i­dent Vi­tor Con­stan­cio sig­nalled Wednesday it could be­gin pur­chas­ing govern­ment bonds -but not un­til next year.

"The ECB is clearly aiming to drive the euro lower as it at­tempts to ex­pand its bal­ance sheet, high­light­ing its ac­com­mo­dat­ing mone­tary stance -- rel­a­tive to the US Fed­eral Re­serve which is head­ing to­wards a nor­mal­i­sa­tion of mone­tary pol­icy," Sta­menkovic added.

Con­stan­cio's re­marks came af­ter ECB chief Mario Draghi re­cently hinted the bank was ready to act quickly to de­ter de­fla­tion.

Data re­leased Thurs­day showed in­fla­tion in Ger­many slowed to its low­est level in nearly five years in Novem­ber, at just 0.6 per­cent year-on-year this month, down from 0.8 per­cent in Oc­to­ber.

The data added to con­cerns the re­gion could be on the verge of de­fla­tion -- a sus­tained and wide­spread drop in prices that ham­pers eco­nomic ac­tiv­ity and threat­ens job losses -- and piles more pres­sure on the ECB to act.

Neil Mellor, se­nior cur­rency strate­gist at BNY Mel­lon, added that there was a "pre­sump­tion" in mar­kets that the ECB would "stick to higher qual­ity as­sets" un­der any bond­buy­ing plan.

He added: "And lower bond yields pro­vide val­u­a­tion sup­port for eq­ui­ties -- along with the pre­sump­tion of grow­ing sur­plus liq­uid­ity."

Else­where, US mar­kets were closed Thurs­day for the Thanks­giv­ing hol­i­day, and will open for short­ened trade on Fri­day.

Oil prices slumped Thurs­day to four-year lows on grow­ing ex­pec­ta­tions that the Or­ga­ni­za­tion of Pe­tro­leum Ex­port­ing Coun­tries will not take sig­nif­i­cant ac­tion at its out­put meet­ing in Vi­enna.

West Texas In­ter­me­di­ate for de­liv­ery in Jan­uary dived to $71.89 a bar­rel -- the low­est level since Septem­ber 2010. Brent North Sea crude hit a four-year trough of $75.48 per bar­rel.-Agen­cies

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