German Bonds Post Weekly Gain as Draghi Sparks Longer-QE Wagers

(Bloomberg) -- Germany’s 10-year bonds posted their first weekly advance this month after Mario Draghi said policy makers didn’t discuss tapering quantitative easing, stoking speculation the program will be extended.

The European Central Bank president “very much achieved” his goal to “calm tapering discussions down” after this week’s two-day policy meeting, said Daniel Lenz, a market strategist at DZ Bank AG in Frankfurt. “He really pointed out that the program will run after March 2017 and that it’s too early to speculate how the volume would look for the remainder of the year. That’s reflected by market developments, with yields moderating.”

German Bonds Post Weekly Gain as Draghi Sparks Longer-QE Wagers

The rally saw the benchmark bund yield fall from the highest since June. Speculation that the Frankfurt-based institution was preparing to pare back its 1.7 trillion-euro ($1.9 trillion) plan, which is scheduled to run until at least March 2017, triggered a slide in euro-zone debt earlier this month. Now, strategists are starting to talk about a QE extension, with a majority of respondents to an Oct. 7-14 Bloomberg survey saying this would be announced in December.

Benchmark German 10-year bund yields were little changed at 0.006 percent as of the 5 p.m. London-time close. The price of the zero percent security due in August 2026 was at 99.944 percent of face value. The yield dropped five basis points this week.

Draghi told reporters on Thursday that officials didn’t discuss a tapering or an extension of QE at their meeting, where they kept interest rates unchanged.

Pacific Investment Management Co. predicts the ECB will ease further in December and that it won’t remove stimulus until inflation is “solidly on track” for its goal of close to 2 percent, Munich-based money manager Andrew Bosomworth said in a note.