German bond yields plumb to record lows after ECB clears path for policy easing


U.S. Treasury yields and European bond yields fell in tandem on Thursday after a European Central Bank meeting saw it indicate plans to ease policy later this year.

What are Treasurys doing?

The 10-year Treasury note yield

TMUBMUSD10Y, +1.31%

  fell 3.7 basis points to 2.013%, while the 2-year note rate

TMUBMUSD02Y, +1.97%

  retreated 2.4 basis points to 1.800%. The 30-year bond yield

TMUBMUSD30Y, +1.10%

  was down 3.7 basis points to 2.547%. Debt prices move in the opposite direction of yields.

The 10-year German government bond yield

TMBMKDE-10Y, +3.48%

  fell 3.2 basis points to negative 0.456%, a record low, according to Tradeweb data.

What’s driving Treasurys?

Investors said the ECB laid the path for an interest rate cut, after the policy guidance from its July central bank meeting tweaked its guidance to reflect that it expected interest rates to stay at “present or lower levels” at least through the first half of 2020. Previously, the ECB had only said it would keep rates at “present levels.”

In addition, the policy statement also indicated that it was taking a look at what tools were still at hand to achieve its inflation target, including a resumption of its asset purchases program. This comes after Draghi said earlier that the ECB retained plenty of easing measures it could unroll if the eurozone failed to rebound.

The central bank left its benchmark interest rate unchanged at 0%, and its deposit rate at negative 0.4%.

See: European Central Bank signals readiness to cut rates

Analysts say the continued tide of tepid data coming out of the export-dependent economic bloc underlined the need for ECB action. A subdued business sentiment indicator from Germany on Thursday underlined its economic growth issues, coming after a slew of weak purchasing manager survey readings for the eurozone on Wednesday.

What did market participants’ say?

“The intent of the [policy guidance] appears more bullish for bonds than expected by many,” wrote Jim Vogel, an interest-rate strategist at FTN Financial.

Carl Tannenbaum, chief economist for Northern Trust, suggested in a tweet that investors should expect the ECB to announce a slew of easing measures in September.

What else is on investors’ radar?

The governor of the Reserve Bank of Australia Philip Lowe also said he stood ready to cut interest rates in the coming months. The Australian central bank has cut its benchmark cash rates by 25 basis point each in June and July, leaving it at a record low of 1%.

The U.S. Treasury Department will hold the last of its three debt auctions later at 1 p.m. New York time Thursday, issuing $32 billion of 7-year notes. The past few auctions have struggled to draw investor appetite, but uncertainty around global economic growth have kept long-term yields anchored.

Source : MTV