Eurozone bond yields hold near record lows ahead of QE

Most euro zone bond yields held near record lows on Tuesday as investors waited for details of the European Central Bank’s trillion euro quantitative easing (QE) programme that kicks off later this week. While a rally in low-rated debt that pushed yields in Spain, Italy and Portugal to record lows on Monday eased, investor focus remained fixed on the ECB’s meeting on Thursday.

“Details are pretty light and the ECB is keeping its cards close to its chest,” said Rabobank strategist Lyn Graham-Taylor.

In an otherwise light data schedule on Tuesday, a pick up in German retail sales provided further evidence that growth is picking up in the bloc’s largest economy. This gave a boost to stock markets, while safer fixed income assets flatlined. German 10-year yields -- the euro zone benchmark -- were unchanged at 0.35 per cent, off a low of 0.28 pct hit last week.

Italian and Spanish equivalents were also flat on the day at 1.35 and 1.29 percent, respectively, above troughs of 1.30 and 1.23 per cent touched on Monday. “The market is very much in a wait-and-see mode,” said Rainer Guntermann, a strategist at Commerzbank.

The exception is Greece, where a precarious financial situation has seen its borrowing costs spike well above its euro zone peers over the last months. Ten-year yields were broadly unchanged at 9.90 percent on Tuesday, with shorter-dated yields even higher -- a sign investors fear the country could once again default.

Despite a four-month extension to its existing bailout it negotiated with the euro zone last month, Greece still faces a steep decline in revenues and could run out of cash by the end of March, possibly sooner.

Spain’s economy minister said on Monday that euro zone countries are discussing a third bailout for Greece worth €30 to €50 billion, but EU officials said there were no such talks. Investor expectations of the euro zone breaking apart have risen to their highest level in two years, a survey showed on Tuesday. Expectations of Greece leaving the euro in the next year rose to 37.1 per cent in February from 22.5 per cent, said the sentix Euro Break-up Index, which polled mainly German-based individual and institutional investors.

Reuters