Euro Bonds Fall as Traders Wonder If Draghi Will Really Deliver

European government bonds fell, with longer-dated yields climbing the most, as investors expressed caution the European Central Bank may not deliver all that they’d hoped at next week’s policy meeting.

German 10-year bund yields posted their first weekly increase since mid-January, while yields on the nation’s shorter-dated notes rebounded from record lows. European securities extended their decline after data showed U.S. employers added more workers in February than economists predicted.

Market News reported that there’s no consensus among central bankers to add to stimulus when they announce their March 10 policy decision. There had been speculation that ECB President Mario Draghi and his colleagues would combine a cut in the already negative deposit rate with a boost to their quantitative-easing program to help stoke growth and stave off deflation.

“Investors are now becoming cautious ahead of the ECB,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan. “The short end stays supported as it’s consensus that the ECB will cut rates. The 10-year is more volatile as investors are questioning if more QE will be enough to keep it at the current very low levels.”

BNP Paribas SA and UBS Group AG warned that core European bond yields may rise further if investors are disappointed about the stimulus the central bank delivers. Germany’s 10-year bund Yield Yield A yield is defined as the earnings generated by an investment or security over a particular time period. This is in typically displayed in percentage terms and is in the form of interest or dividends received from it.Yields do not include the price variations, which differentiates it from the total return. As such, a yield applies to various stated rates of return on stocks, fixed income instruments such as bonds, and other types of investment products.Yields can be calculated as a ratio or as a A yield is defined as the earnings generated by an investment or security over a particular time period. This is in typically displayed in percentage terms and is in the form of interest or dividends received from it.Yields do not include the price variations, which differentiates it from the total return. As such, a yield applies to various stated rates of return on stocks, fixed income instruments such as bonds, and other types of investment products.Yields can be calculated as a ratio or as a Read this Term jumped 20 basis points, or 0.2 percentage point, on Dec. 3 after Draghi’s measures fell short of the market’s expectations.

Weekly Increase

The German yield rose seven basis points to 0.24 percent as of 4:45 p.m. London time. It’s up nine basis points since last Friday in the first weekly increase since Jan. 15. The 0.5 percent security due in February 2026 dropped 0.67, or 6.70 euros per 1,000-euro ($1,102) face amount, to 102.59.

In an encouraging sign for the ECB, a bond-market gauge of inflation expectations rose this week. The five-year, five-year forward inflation-swap rate, which Draghi has cited to justify monetary easing, climbed 13 basis points from a record low to 1.51 percent.

Money market traders have fully priced in a cut to the ECB’s minus 0.3 percent deposit rate at next week’s meeting, according to data compiled by Bloomberg using Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term on the euro overnight index average.

There’s an 84 percent chance of a cut to minus 0.4 percent and an 16 percent chance the rate will be reduced to minus 0.5 percent. The calculation assumes the gap between Eonia rates and the deposit rate would remain in line with recent levels.

To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net. To contact the editors responsible for this story: David Goodman at dgoodman28@bloomberg.net, Paul Armstrong, Keith Jenkins

By: Eshe Nelson

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