Imminent QE Boost Sends Spain's 5-Year Debt Yield to Record Low

  • ECB to expand monthly purchases by 20 billion euros from April
  • Euro zone's sub-zero inflation rate underpins demand for bonds

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 five-year note yields fell to a record 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. German 10-year bunds, the region’s benchmark securities, rose for a fourth day in their longest winning stretch since January, though they lagged their higher-yielding 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 Tumble

Yields on Spain’s 10-year bonds declined nine basis points, or 0.09 percentage point, to 1.44 percent at 4:40 p.m. London time, the biggest drop since March 11. The 1.95 percent security due in April 2026 climbed 0.81, or 8.10 euros per 1,000-euro face amount, to 104.765.

The nation’s five-year note yield fell six basis points to 0.321 percent, the lowest since Bloomberg started collecting the data in 1993. Germany’s 10-year bund yield dropped four basis points to 0.14 percent, the lowest since March 1.

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.


Source: Bloomberg