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EURO GOVT-German yields stable at low levels before ECB meeting
April 4, 2013 / 7:31 AM / in 5 years

EURO GOVT-German yields stable at low levels before ECB meeting

* Investors expect monetary easing signals from the ECB

* Bunds may dip if ECB maintains status quo

* Spanish bond auction seen going smoothly

By Marius Zaharia

LONDON, April 4 (Reuters) - German government bonds were little changed on Thursday, with investors reluctant to make any fresh bold bets before a European Central Bank meeting later in the day.

Analysts say markets are positioned for the ECB to keep its key interest rate unchanged at a record low 0.75 percent but potentially offer hints that future monetary policy easing might be on the cards.

The euro zone Markit PMI index for March, due at 0758 GMT, is seen at 46.5, below the 50 mark that separates growth from contraction and analysts say such data support the case for future monetary policy easing.

ECB President Mario Draghi’s comments about how he expects the economy to fare later in the year will be closely scrutinised by investors.

“If he still signals that in the second half he expects a small recovery Bunds will sell off,” said Emile Cardon, market economist at Rabobank in Utrecht.

He added though that such a reaction might be limited and short-lived given that Bunds are seen as a safe haven and investors still worry about the potential ramifications from the Cypriot bailout decision and political uncertainty in Italy.

Bund futures were last 1 tick higher on the day at 145.53, while cash 10-year German yields were flat at 1.28 percent. Cardon said he saw a near-term range of 1.20-1.40 percent for Bund yields, but added they were more likely to fall from current levels than rise.


Spain aims to raise up to 4 billion euros in 2016, 2018 and 2021 bonds later on Thursday.

Analysts expect the auction to go smoothly as lower-rated euro zone bonds have so far shown resilience to the Cypriot crisis and the political instability in Italy, which is still in search for a government after its elections in February.

“The amount is quite low so it is easy to digest for investors ... (and) the Draghi put remains effective,” KBC rate strategist Mathias van der Jeugt said, referring to the ECB’s promise to buy bonds issued by vulnerable countries if they ask for financial aid and commit to reforms.

Commerzbank strategists expect Spain to issue more than the target amount, which would put selling pressure on safe-haven German Bunds before the ECB meeting.

France also plans to sell 6-7 billion euros worth of bonds on Thursday.

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