Europe's higher-yielding bonds benefit as ECB prepares QE boost

Government bonds across the euro zone rose as the European Central Bank prepared to increase its debt purchases and investors awaited economic reports that are likely to show officials are still far from achieving their policy objectives.

Spanish 10-year debt yields fell the most in more than a week before a report Thursday that will show annual inflation in the country slowed for an eighth month in March, according to economists surveyed by Bloomberg. Similar-maturity German bunds, the region's benchmark government securities, rose for a fourth day in their longest winning stretch since January, though they lagged their higheryielding peers.

"There's still more room to go," said Jan Von Gerich, chief strategist at Nordea Bank AB in Helsinki. "Across the board, we're going to see more spread narrowing." Euro-area debt has outperformed U.S. Treasuries this month before the ECB increases monthly bond purchases to 80 billion euros ($89 billion) from 60 billion euros on April 1. But with quantitative easing now a year old, the program is struggling to have much of an effect on the economy. A report due on the same day as the Spanish data is forecast to show euro-zone prices fell, leaving inflation far short of the close to 2 percent rate aimed at by policy makers.

Yields on Spain's 10-year bonds declined seven basis points, or 0.07 percentage point, to 1.46 percent at 10:03 a.m. London time, set for the biggest daily drop since March 17. The 1.95 percent security due in April 2026 climbed 0.62, or 6.20 euros per 1,000-euro face amount, to 104.575. Dutch and Irish government bonds will be supported because of lower issuance than last year, while Portuguese securities are attractive because of the yield pick-up they offer over benchmark debt, Von Gerich said.