(Corrects reference to Euribor rates moves in 9th paragraph to
clarify investors bet on them to fall, not rise)
* German consumer confidence slips, Italy to revise GDP
* Bund future hits new high, cash yields fall to lows
* Investors place bets on rising Euribor, say brokers
* JP Morgan calls for ECB rate cut next week
* Germany's Schaeuble says Draghi comments
By John Geddie
LONDON, Aug 27 German Bund yields reached record
lows on Wednesday, as further evidence of the region's faltering
economy fed market expectations for more European Central Bank
Weaker-than-expected consumer confidence in Germany drove
the market, together with reported comments from Italy's economy
minister that Rome must lower its forecast for economic growth.
Eager to tackle the euro zone's economic malaise, ECB
President Mario Draghi on Friday appeared to shift the bank's
policy response towards growth. Crucially for investors, he left
the door open for a programme of asset purchases known as
quantitative easing (QE).
"When the EMU's largest economy is falling behind, this is
very much increasing the chances of the ECB heading for further
monetary measures, above all QE," said DZ Bank strategist Daniel
German Bund futures climbed to record highs of 151.28, up 46
ticks on the day. Ten 10-year cash bond yields fell 3.7 basis
points to 0.91, a shade above the record low of 0.926 percent
reached on Monday. German 10-year yields
have dropped over 100 bps this year.
Spanish and Italian bond yields both fell to record lows for
the third consecutive day, down 10 bps and 7 bps respectively at
2.09 and 2.37 percent.
With Draghi particularly concerned about the decline in
market expectations for inflation, the latest consumer price
data for Germany due on Thursday and then for the entire euro
zone on Friday will be closely watched. <ECONALLEU
'ALL THE RIGHT NOISES'
Only a handful of strategists expect the ECB to announce
further policy action at its meeting next week, but one trader
said investors will be "hoping for all the right noises".
Brokers say large volumes of options are being purchased by
investors betting that Euribor rates, the benchmark for euro
zone bank-to-bank lending, will fall in the coming months as a
result of ECB rates cuts or a surge in spare cash in the system.
In a note to clients, JP Morgan said it expected the ECB to
cut rates at next week's meeting and reduce the interest it
plans to charge on a new set of emergency loans it will make
available to banks next month.
But there is room for disappointment as well. Germany's
Finance Minister Wolfgang Schaeuble told a newspaper on
Wednesday that Draghi's comments had been "over-interpreted",
particularly in reference to fiscal policy playing a greater
role in promoting growth.
Elsewhere, Austrian bond yields dipped 2 bps to 1.67 percent
after a report late on Tuesday that Austria's conservative
People's Party has picked Economy Minister Reinhold Mitterlehner
to replace Michael Spindelegger as party leader. Spindelegger
resigned unexpectedly in a row over tax reform; he refused to
cut taxes unless they cuts could be financed without new levies.
His departure comes amid a political battle in Europe over
whether belt-tightening has gone too far at the expense of
economic growth. The same clash forced a government reshuffle in
France this week.
(Editing by Hugh Lawson, Larry Kin)