German Bond rally seen enduring after best month since 2012
This month's rally in German government bonds pushed the yield on Europe's benchmark 10-year securities down by the most since May 2012, two months before European Central Bank President Mario Draghi pledged he'd do whatever it takes to preserve the euro. Analysts say there may be more to come.
Germany's 10-year bund yield dropped 30 basis points in January as turmoil in financial markets and the Bank of Japan's adoption this week of negative interest rates fueled demand for the relative safety of fixed-income securities. Two-year note yields from Austria to Ireland slumped to fresh lows. And after Draghi's signal on Jan. 21 that policy makers may expand stimulus as soon as March, yields could fall still lower.
"Fundamentally the environment is quite supportive" for German bonds, said Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in London. "In terms of portfolio flows, that's going to make western bonds more attractive, now that you have negative rates in Japan. It also somehow revives the currency war theme and that raises the question about how aggressive the ECB could be in March."
German 10-year bund yields tumbled 16 basis points, or 0.16 percentage point, this week to 0.33 percent as of the 5 p.m. close in London Friday, after touching 0.32 percent, the lowest since April. The 0.5 percent security due February 2026 rose 1.565, or 15.65 euros per 1,000-euro ($1,083) face amount, to 101.725.
Bond gains have accelerated as central banks worldwide seek to soothe markets by giving indications of continued easy monetary policies. Expectations of further loosening by the ECB helped push Germany's five- year note yield below the ECB's deposit rate of minus 0.3 percent Friday.