ECB QE boost can’t save Euro bonds from worst month since August

epa05269524 The sun set behind the European Central Bank (ECB) in Frankfurt, Germany, 20 April 2016.  EPA/ARNE DEDERT



The first month of the European Central Bank’s expanded stimulus program has done little to aid the region’s government bonds.
Even as the ECB increased its asset-purchase program to €80 billion ($92 billion) in April, from €60 billion, sovereign securities headed for their biggest monthly decline since August, according to Bloomberg World Bond Indexes.
Benchmark German 10-year bunds dropped alongside their French and Italian peers as oil futures climbed to the highest level since November, boosting the outlook for inflation. Bonds were also weighed down by supply of longer-dated government debt, with France and Belgium selling 50-year securities.
“The whole notion of the ECB stepping up their purchases in April and May has already been front run,” said Martin van Vliet, senior interest-rate strategist at ING Groep NV in Amsterdam. “So people are starting to look at new drivers and what is important now is the ascent of oil prices and that is starting to feed through into inflation expectations.”

Bonds across the region have surged since the ECB announced its asset-purchase plan in January 2015, pushing yields to record lows. While borrowing costs still remain historically low, this month’s move may indicate that the impact of the ECB’s quantitative easing is waning. France’s 10-year bond yield jumped 15 basis points in April to 0.63%, while that on similar-maturity Italian debt climbed 27 basis points, the most since June, to 1.49%.
Euro-region government securities handed investors a loss of 1 percent this month through Thursday. U.S. Treasuries dropped 0.3 percent, while Japanese bonds returned 0.9 percent. The five-year, five-year forward inflation-swap rate, which ECB President Mario Draghi has cited in the past to justify monetary easing, climbed to 1.47 percent, the highest closing level in almost seven weeks, as Brent crude futures touched the most since Nov. 4.

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