Euro-Area Bonds Gain on Deflation Concern, Coeure Comments on QE

Euro-area government bonds rose, led by those of Portugal and Italy, amid speculation the risk of deflation in the region will prompt the European Central Bank to expand stimulus measures as soon as this month.

German 10-year yields approached a record low as Die Welt cited ECB board member Benoit Coeure as saying the institution is ready to decide on buying sovereign debt when officials meet on Jan. 22. Bonds worldwide were boosted as declines in oil and copper dragged the Bloomberg Commodity Index to a 12-year low, curbing inflation expectations. The Netherlands sold securities, while Austria, Germany and Italy were due to auction debt. Slovakia and Portugal may sell bonds via banks.

“The inexorable decline in oil prices is reinforcing global disinflation pressures,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. That’s “prompting further declines in 10-year bund yields amid rising expectations of QE by the ECB sooner rather than later.”

Portugal’s 10-year yield dropped four basis points, or 0.04 percentage point, to 2.56 percent at 9:14 a.m. London time. The rate fell to 2.418 percent on Jan. 2, the lowest since Bloomberg started tracking the data in 1997. The 5.65 percent bond due in February 2024 rose 0.38, or 3.80 euros per 1,000-euro ($ 1,182) face amount, to 124.75.

The rate on similar-maturity Italian bonds fell four basis points to 1.77 percent, while that on German 10-year bunds declined two basis points to 0.46 percent. It touched a record 0.432 percent on Jan. 7.

Inflation-Swap

The five-year, five-year forward inflation-swap rate, highlighted by ECB President Mario Draghi in August at a symposium for central bankers, was at 1.50 percent today. That would be the lowest close since at least 2004. A report last week showed the euro area’s consumer-price index dropped an annualized 0.2 percent in December. The ECB’s inflation goal is just under 2 percent.

Brent crude slumped as much as 4.6 percent today to the lowest since March 2009 and copper dropped 1.4 percent.

Portuguese securities returned 1.9 percent in the past three months, according to Bloomberg World Bond Indexes. Germany’s added 3.3 percent and Italy’s earned 2.8 percent.

To contact the reporter on this story: David Goodman in London at [email protected]

To contact the editors responsible for this story: Paul Dobson at [email protected] Mark McCord, Keith Jenkins

Eurozone inflation rate for August revised upward to 0.4 per cent from 0.3 per cent

By The Associated Press

BRUSSELS – The inflation rate in August for the 18 countries using the euro has been revised up slightly.

The European Union’s statistics office, Eurostat, said Wednesday the eurozone’s annual inflation rate was 0.4 per cent, up from its initial estimate of 0.3 per cent published late last month.

The news is likely to provide a little relief as economists fear the bloc could slide into a downward spiral of falling prices that could dent economic growth. The European Central Bank announced new measures last month to fend off the risk of deflation and save the stalling recovery.

However, the Eurostat figures showed that the eurozone’s third- and fourth-largest economies, Italy and Spain, saw prices fall by an annual 0.2 per cent in August. Portugal, Greece and Slovakia also experienced falling prices.

Euro zone bond yields dip as ECB's Draghi reaffirms possibility of QE

By Emelia Sithole-Matarise

LONDON, July 15 (Reuters) – Euro zone bond yields slipped on Tuesday after European Central Bank President Mario Draghi reaffirmed the bank’s readiness to print money if necessary to support the region’s economic recovery.

With concerns over the financial health of Portugal’s biggest bank easing, the market was steadier, putting lower-rated euro zone bonds on a firmer footing after last week’s sell-off.

Draghi said late on Monday that policymakers were prepared to use unconventional measures to address the risk of too prolonged a period of too low inflation. Quantitative easing, or money printing to buy assets, was part of the bank’s mandate, he said. He also said a stronger euro exchange rate was a risk to the sustainability of the euro zone recovery.

The ECB’s ultra-easy monetary policy and the prospect that it may eventually embark on an asset-buying programme to support the region’s feeble economic growth has fueled a relentless hunt for yield in peripheral bond markets.

Italian and Spanish 10-year yields were each down 3 basis points at 2.86 percent and 2.75 percent respectively.

Greek yields were 3 bps lower at 6.24 percent while their Portuguese equivalents dipped 1 basis point to 3.82 percent after Banco Espirito Santo took steps at the weekend to reassure investors of its stability.

“With the ECB signalling that it will continue to maintain an easing bias with the possibility of QE in coming months, peripheral spreads probably have scope to come further in,” said Nick Stamenkovic, a bond strategist at RIA Capital Markets.

“We prefer Italy and Spain to Portugal at this juncture … Whilst the worries about BES seem to have dissipated clearly this idiosyncratic risk has raised concerns that there could be further problems coming in the future. Spain by contrast is much further forward in bank recapitalisation while Italy is making progress.”

DOVISH YELLEN?

German 10-year yields, the benchmark for euro zone borrowing costs, were 1 basis point down at 1.19 percent ahead of Germany’s ZEW sentiment index for July, which is seen falling for a seventh consecutive month.

U.S. Federal Reserve Chair Janet Yellen’s testimony to the Senate will also be watched after the June Fed minutes suggested policymakers were in no rush to raise interest rates.

“The market is positioned for a dovish view from Yellen so the risk is she could be slightly more hawkish than anyone is anticipating. But overall, just like with Draghi, we still think Yellen will stick to a dovish line,” said Mathias van der Jeugt, a strategist at KBC.

Euro-Area Bonds Advance as Rate-Cut Predictions Boost Demand

Euro-area government bonds advanced, pushing the 10-year yields of Ireland, Italy and Spain to all-time lows, as banks from Goldman Sachs Group Inc. to UBS AG predict policy makers will cut rates next month.

Italian 30-year yields fell below 4 percent for the first time since 2006 after European Central Bank President Mario Draghi said yesterday officials are “comfortable” about taking further action if needed. Goldman and UBS forecast the ECB will cut its refinancing rate to 0.1 percent and its deposit rate to minus 0.15 percent at its June meeting. Portugal’s bonds rose after Standard & Poor’s revised the nation’s credit-rating outlook to stable from negative.

“Markets have clearly moved to expect a rate cut as a minimum at the June meeting,” said Mark Dowding, a London-based money manager at BlueBay Asset Management LLP, which oversees $ 57.8 billion. “The burden of proof is in the data and Draghi may find it difficult to deliver in June. The market is getting ahead of itself. The sense in the periphery is that we’ve now seen the vast majority of the spread tightening that we’re looking for.”

Spain’s 10-year yield declined one basis point, or 0.01 percentage point, to 2.88 percent at 8:38 a.m. London time after falling to 2.85 percent, the lowest since Bloomberg began compiling the data in 1993. The 3.8 percent bond maturing in April 2024 rose 0.05, or 50 euro cents per 1,000-euro ($ 1,383) face amount, to 107.885.

Italy’s 10-year yield fell as much as three basis points to 2.89 percent, while the rate on the nation’s 30-year bonds dropped to 3.985 percent, the least since January 2006. Portugal’s 10-year yield declined two basis points to 3.44 percent.

Benchmark German bund yields were little changed at 1.45 percent after falling to 1.44 percent, the lowest since May 27, 2013.

Spain’s government securities returned 8.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. Portugal’s gained 16 percent and Germany’s earned 3.3 percent.

To contact the reporter on this story: Lucy Meakin in London at [email protected]

To contact the editors responsible for this story: Paul Dobson at [email protected] Keith Jenkins, Nicholas Reynolds

Euro zone business activity edges closer to 3-year peak

A nascent recovery in euro zone business activity continued on Wednesday with data managing to beat analysts’ expectations, despite slower growth in France and fears of falling prices weighing on sentiment.

Markit’s flash purchasing managers’ index (PMI) for April revealed that the euro zone’s composite index rose to 54.0, up from 53.1 in March. A reading above 50 marks an expansion in the private sector.

The data was driven by strong growth in Germany, with the composite number rising to 56.3 in April, from 54.3 in March. France saw slower growth in its private sector, but output rose for a second month with a figure of 50.5, down from March’s 51.8 reading. Output in the euro zone’s second-largest economy was hit by new orders in manufacturing, which stagnated after rising in March. This caused French firms to once again cut back on their staffing levels, according to Markit, the London-based research company that collates the data.

The data provided proof that French growth was still “fragile”, according to Howard Archer, an economist at IHS Global Insight. This was in marked contrast to the “robust” expansion he suggested the German numbers indicated.

The single currency rose to a session high of $ 1.3843 shortly after the data release. The euro (Exchange:EUR=) had started the session at $ 1.3806. European stock markets showed little change with earnings release in the tech sector continuing to weigh on investor sentiment.

Despite the softer data from France, the private sector in the euro area grew at its fastest in just under three years in April, with the bloc as a whole showing signs of a return to job creation.

“With backlogs of work rising, albeit only modestly, firms took on more staff in order to expand capacity. The increase in employment was the largest since September 2011, and only the second since 2011. Rates of job creation in both the manufacturing and service sectors were nevertheless only modest as many firms continued to focus on keeping costs low to boost competitiveness,” the company said in Wednesday’s release.

Read More QE from ECB? May not be the panacea many hope

Chris Williamson, Markit’s chief economist added that these PMIs mean that GDP (gross domestic product) for the euro zone is on course to rise by 0.5 percent in the second quarter, building on a 0.4 percent rise in the first quarter.

“Perhaps the best news came from the rest of the region, where the fastest rate of growth seen since early-2011 suggests that the recovery in the ‘periphery’ is gaining traction,” he said.

As well as the worse-than-expected French data, Williamson said the outlook for prices is a concern. The euro bloc has recently posted some weak growth in consumer prices and market watchers have warned against the threat of dwindling inflation and the possibility of deflation – where consumer prices start to fall.

Read More Portugal set for bond auction, first since bailout

The European Central Bank (ECB) has said that it is monitoring the situation and has hinted that it would be ready to act if this weakness continued. Williamson said that Markit’s data showed prices falling at their fastest pace since last August despite the upturn in activity.

“There will be growing fears that deflationary pressures are intensifying and that the ECB needs to respond with more than just words to the recent appreciation of the exchange rate,” he said.

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Euro zone unemployment rate stable in February

BRUSSELS (Reuters) – Unemployment in the euro zone declined slightly in February, although the rate remained at 11.9 percent after downward revisions of the past few months, the European statistics office Eurostat said on Tuesday.

Eurostat said in a statement that 18.97 million people in the 18-country euro zone were unemployed in February, a decrease of about 35,000 from last month.

This equated to a rate of 11.9 percent, the same as in January. Eurostat, which had initially reported a figure in January of 12.0 percent, said the rate had been stable since October 2013.

Unemployment eased slightly in Spain to 25.6 percent from 25.8 percent, while France, Italy and the Netherlands saw minor increases in the number of unemployed people.

For job seekers under the age of 25, the situation improved in February, with a youth unemployment rate of 23.5 percent in the euro zone from 23.6 percent in January.

The number improved most markedly in Austria and Spain, while those under the age of 25 seeking jobs in Portugal increased from the previous month.

In the 28-member European Union, overall unemployment decreased to 10.6 percent in February from 10.7 percent in January.

(Reporting by Robert-Jan Bartunek; editing by Philip Blenkinsop)

Naysayers of euro? Here's why to be careful

Even Greece is making a heroic promise that it will soon begin paying its own way, with some economic growth later this year. Spain’s devastated labor markets are improving, and the country needs no further help with its bank restructurings. Portugal came out of a recession in the third quarter of last year, and it may no longer need conditional lending from the IMF and the EU. The house building in Dublin has picked up in recent months as the clobbered Celtic Tiger exults about making “a clean exit” from the bailout program …

A very modest progress, no doubt, but these were all of the eurozone’s major disaster areas. And they are all beating German Chancellor Merkel’s forecast. Reflecting her deep concern about the euro area, she told the regional meeting of her Christian Democrats (CDU) party on November 3, 2012 that “we need a long breath of five years and more” to get out of the financial crisis.

Still, even if the crisis is over, it is much too early to celebrate because 19.3 million people in the euro area have no jobs and basic welfare services.

(Read more: Euro zone’s 2014 pressure point—politics)

But a silver lining of this crisis – if there are any – is that the increasing labor mobility is helping to alleviate some of these problems.

It is not just that the Portuguese are migrating to Angola and Mozambique, and that the Irish are back on their traditional immigration trails to the U.S. and Canada. They are also finding jobs in Europe. It has almost become fashionable for young French graduates to work in other EU countries. And the number of German workers and students moving to Austria has doubled in the last six years.

These intra-European migration trends are bound to amplify. Despite the Bavarian political football with alleged abuses of “immigration tourists” from Bulgaria and Romania, the German Chamber of Commerce and Industry, and the German government, are welcoming the labor force from their European neighbors. They estimate that Germany will need “at least 1.5 million immigrants” in the coming years to help keep the economy going and to pay for the country’s social welfare system.

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