Euro zone bond yields sink as investors prepare for QE year

Monday, 5 January 2015 00:00 - - {{hitsCtrl.values.hits}}

LONDON (Reuters): Government bond yields fell to new record lows across the euro zone on Friday on expectations the European Central Bank is set to fight slowing inflation with new stimulus measures in the new year. German, French, Italian, Spanish, Irish, Dutch, Portuguese, Belgian and Finnish yields hit record lows after ECB President Mario Draghi said the bank would act to keep consumer prices stable. German five-year yields fell below zero and 10-year Bund yields fell below 0.50% for the first time. The gap between 10-year Spanish and German yields fell below 100 basis points for the first time since 2010. Economists polled by Reuters expect the euro zone to report consumer prices fell in December by 0.1% when data is released on Jan. 7. That could prompt the ECB to begin a programme of sovereign bond purchases – so-called quantitative easing – as early as its first meeting, on Jan. 22. “It is quite clear that the ECB is preparing to do more and expectations are centring on the January meeting,” said Nordea strategist Jan von Gerich. “The way markets have developed, it is a clear signal that the ECB cannot afford to wait that much longer.” High-yielding bonds in the bloc’s southern periphery are expected to outperform those with lower yields if the ECB launches such a scheme. Yields fall as prices rise. Italian and Spanish 10-year yields fell about 10 basis points to 1.77% and 1.52%. Portuguese yields dropped 23 bps to 2.47%. Bund yields dipped 5 bps to 0.49%. Greek debt yields – shaken last week by the prospect of elections this month that could catapult the anti-austerity Syriza party to power – fell 41 bps to 9.23%.

US-based taxable bond funds post $ 5.9 b outflows in week: Lipper

NEW YORK (Reuters): Investors in U.S.-based funds pulled $5.9 billion out of taxable bond funds in the week ended Dec. 31, marking their biggest outflows since June 2013, data from Thomson Reuters’ Lipper service showed on Friday. The outflows reversed inflows of $6.1 billion the prior week. Investment-grade corporate bond funds posted $1.2 billion in outflows, their biggest since late Oct. 2013. Funds that specialise in U.S. Treasuries posted $2.3 billion in outflows, their biggest since September. Riskier high-yield bond funds posted $960 million in outflows, their fifth straight week of outflows. Emerging market bond funds also posted their fifth straight week of outflows, at $164 million. Stock funds attracted $1.8 billion in inflows, down from massive $36.5 billion inflows the prior week, which were the biggest since Lipper’s records began in 1992. Japanese stock funds attracted $246 million in inflows after investors pulled a record $1.5 billion out of the funds the prior week.