German govt bonds resilient to inflation, raise outlook for ECB

Bloomberg

Investors are clinging to their German government bonds, looking beyond a report on Thursday that’s predicted to confirm that euro-area inflation accelerated last month to the fastest rate since 2014.
As more forward-looking measures signal the European Central Bank is struggling to meet its longer-term consumer-price objectives, the yield on benchmark German 10-year securities stayed about 0.1 percentage point from its record low. That reflects investor confidence that the ECB may inject more stimulus, including bolstering its bond-buying program.
A gauge of inflation expectations that the central bank’s president, Mario Draghi, has cited in the past as justifying monetary easing closed at its lowest on record Wednesday. That highlights the continuing pressure on the institution to avoid stagnant consumer prices. In January, the inflation rate increased to an annual 0.4 percent from 0.2 percent growth in the previous month, the European Union’s statistics office will confirm Thursday, according to the median estimate of economists in a Bloomberg survey. That would be the highest reading since October 2014.
Germany’s 10-year bund yield was little changed at 0.15 percent as of 9:57 a.m. London time. The price of the 0.5 percent security due in February 2026 was at 103.49. The yield dropped to 0.13 percent on Wednesday, its lowest level since April. The record low was 0.049 percent on April 17.
The five-year, five-year forward inflation-swap rate dropped on Thursday to 1.39 percent, the lowest on a closing basis since Bloomberg started tracking the data in 2004, and still far from the ECB’s goal of just under 2 percent.