German 10-year government bonds rose in the past five days along with French securities amid speculation European Central Bank officials will take steps next week toward easing monetary policy as price growth slows.
Demand for safer assets increased after the US and its Arab allies launched a series of strikes against Islamic State positions in Syria. The take-up of the ECB’s new loan program last week fueled speculation the central bank will do more to support the economy. A gauge of price-growth expectations in the region, based on inflation swaps, dropped for a third month in September, even after policy makers unexpectedly cut interest rates this month, Bloomberg reported.
“European bonds have done well this week as people start to speculate the next step for the ECB in terms of providing stimulus,” said Peter Chatwell, a fixed-income strategist at Credit Agricole SA’s investment banking unit in London. “Geopolitical tensions also moved up a notch and that benefits haven assets.”
Germany’s 10-year yield declined seven basis points, or 0.07 percentage point, this week to 0.97 percent as of 5 p.m. London time yesterday. The 1 percent bund due in August 2024 climbed 0.665, or 6.65 euros per 1,000-euro ($1,269) face amount, to 100.265.
The rate on similar-maturity French bonds dropped eight basis points this week to 1.31 percent.
The five-year, five-year forward inflation swap rate has dropped eight basis points this month to 1.923 percent. It touched 1.916 percent on Sept. 19, the lowest level since Bloomberg began collecting the data in 2004. The euro-region’s inflation rate, an annualized 0.4 percent in August, is a fraction of the central bank’s goal of just under 2 percent.
