German, French govt bonds leapt to record peaks

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LONDON: (AFP) – German and French government bonds leapt Thursday to record peaks on the prospect of quantitative easing in the struggling eurozone, while stocks also pushed higher.

The interest rate or yield on Germany s 10-year bond sank to 0.709 percent, below the previous all time-low of 0.719 percent that was hit last month.

France s 10-year note fell to an historic low of 0.997 percent from 1.051 percent on Wednesday. Bond yields and prices move inversely. The European single currency dropped to $1.2479 from $1.2506 late in New York on Wednesday.

“In an environment of plentiful liquidity in the global market, investors are driving down bond yields as investors anticipate further easing by the ECB,” said Nick Stamenkovic, strategist at RIA Capital Markets. “Equities are also rallying, aided by rising hopes that a weaker euro will boost earnings and euro area activity.”

The German 10-year bond — the Bund — is the eurozone s key benchmark because Germany benefits from the most confidence among investors. Stocks also rose in after trading, with London s FTSE 100 index up 0.22 percent at 6,744.06 points, while the Paris CAC 40 gained 0.41 percent to 4,391.49 points after an earlier technical problem.

Frankfurt s benchmark DAX 30 jumped 0.66 percent to 9,980.97 points compared with Wednesday s closing value. Frankfurt stocks were particularly boosted because, under a bond-buying plan, the European Central Bank would be required to purchase German bunds in proportion to Germany s near 18-percent contribution to the ECB s capital base.

The ECB s deputy president Vitor Constancio signaled Wednesday it could begin purchasing government bonds — but not until next year. “The ECB is clearly aiming to drive the euro lower as it attempts to expand its balance sheet, highlighting its accommodating monetary stance — relative to the US Federal Reserve which is heading towards a normalization of monetary policy,” Stamenkovic added.

Pumped by QE prospect

Constancio s remarks came after ECB chief Mario Draghi recently hinted the bank was ready to act quickly to deter deflation. Data released Thursday showed inflation in Germany slowed to its lowest level in nearly five years in November, at just 0.6 percent year-on-year this month, down from 0.8 percent in October.

The data added to concerns the region could be on the verge of deflation — a sustained and widespread drop in prices that hampers economic activity and threatens job losses — and piles more pressure on the ECB to act. Neil Mellor, senior currency strategist at BNY Mellon, added that there was a “presumption” in markets that the ECB would “stick to higher quality assets” under any bond-buying plan. He added: “And lower bond yields provide valuation support for equities — along with the presumption of growing surplus liquidity.”

Elsewhere, US markets were closed Thursday for the Thanksgiving holiday, and will open for shortened trade on Friday. Oil prices slumped Thursday to four-year lows on growing expectations that the Organization of Petroleum Exporting Countries will not take significant action at its output meeting in Vienna.

West Texas Intermediate for delivery in January dived to $71.89 a barrel — the lowest level since September 2010. Brent North Sea crude hit a four-year trough of $75.48 per barrel. Crude prices have tumbled by more than 30 percent since June, depressed also by a strong dollar and worries about stalling energy demand in a weak global economy.

On the London Bullion Market, gold slid to $1,196.50 an ounce, compared with $1,197.50 late on Wednesday.

2014-11-28

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