(Bloomberg) -- Mario Draghi just handed German bonds the worst day in nearly two years.
Yields surged in the region’s core and peripheral economies after the European Central Bank President said that deflationary forces had been replaced by reflationary ones. While the central bank is committed to bond purchases through December, investors took his remarks to mean that the ECB may announce a tapering of its package of stimulus measures as early as autumn.
“The price action would suggest that, it seemed to be a small step on the long ongoing path towards policy normalization,” Andy Chaytor, head of European rates strategy at Nomura International, said in emailed comments. The ECB will announce tapering in September, he said.
Yields on German 10-year bonds rose 11 basis points, the most since December 2015, to 0.35 percent as of 4:45 p.m. in London. Comparable yields in France rose as much as 13 basis points, the most in nearly eight months, to touch 0.72 percent.
While inflation in the euro zone remains subdued, economic data has largely been positive and political risks have dissipated following the French and Dutch elections. The bank is also running out of government bonds to purchase in some countries and has had to skew its buying accordingly. It releases its next set of purchasing data on Monday.