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Economy

xchrom

(108,903 posts)

22. Any ECB bond-buying could halt slide in euro zone debt yields

Reply to Tansy_Gold (Original post)

Mon May 19, 2014, 08:53 AM

May 2014

http://uk.reuters.com/article/2014/05/19/uk-eurozone-bonds-ecb-idUKKBN0DZ0XP20140519

(Reuters) - Any European Central Bank move to print money could raise investors' expectations for euro zone inflation and growth, pushing German Bund yields higher and potentially halting a two-year-old rally in peripheral debt.

Euro zone bonds have gained in recent weeks on growing expectations the ECB will eventually start buying government debt with new money to help bring inflation back to its target of just under 2 percent from 0.7 percent in April.

The central bank would have to pay a high price for those bonds and investors are buying them now with a view to selling them to the ECB for a profit later.

But if the ECB embarked on a programme of quantitative easing, or QE, investors would then have to consider that it was intended to boost longer-term inflation and growth and yields on benchmark 10-year bonds would have to adjust higher.

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