Boost for German Bonds
World Economy

Boost for German Bonds

Inflation data next week are set to provide another demonstration of the challenge facing the European Central Bank, while giving a boost to investors backing German bonds.

Price growth in the eurozone held at 0.2% in July, economists surveyed by Bloomberg said before an Aug. 14 report. Such a result would fall far short of the European Central Bank’s target of close to 2% inflation, and would help convince traders that its quantitative-easing plan will last through to the scheduled end date of September 2016, Bloomberg reported.

Germany’s benchmark 10-year bunds rallied Friday as sliding oil prices reinforced speculation that slow inflation will persist. That pared losses made earlier in the week as data, including better-than-forecast German factory orders, showed evidence of an improving economy.

“There had been some talk, a couple of months back, that maybe they can end this QE program early and that’s definitely disappeared now because of what’s happened with oil,” said Lyn Graham-Taylor, a rates strategist at Rabobank International in London. “The headline rate is going to struggle to get close to 2%,” which is “restraining” bond yields, he said.

Germany’s 10-year bund yield rose two basis points, or 0.02 percentage point, in the week to 0.66% at London close on Friday.

The 1% security due August 2025 fell 0.175, or €1.75 per €1,000 ($1,097) face amount, to 103.27. That followed three straight weeks of yields tumbling.

The 19-nation eurozone’s economy expanded 0.4% in the second quarter, matching growth in the first three months of the year, analysts in a separate survey predicted before another Aug. 14 report.

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