Speculations over ECB injecting stimulus increases bond yields

Yields from the global bond went up on Tuesday, after the build-up of the speculation over European Central Bank injecting a liberal fiscal stimulus in the economy. It pumps up hope in the ailing economy amid the looming recession fears.

The stimulus is believed to be the ECB’s outgoing president Mario Draghi’s parting gift to Berlin. In its last meeting in July, ECB committed to introducing further interest rate cuts along with a package to help the country prevent its economy from spiraling down and pull the stubbornly low inflation rate up.

The effect of the package speculation was evident as Germany’s 30-year benchmark bond yield DE30YT=RR climbed into positive territory (though briefly) for the first time in over a month. US Treasury bond yields also reached 18-day highs.

The hike in yields came ahead of the ECB meeting, scheduled for Thursday this week. The investors expect the meeting to come up with a formal announcement about the cut to interest rates, which would lead to further bond-buying stimulus.

Deutsche Bank’s Jim Reid told Reuters, “These stories have become more frequent in recent weeks. Whilst the market always gets more excited by the headlines than is justified by hard evidence of any change in policy, it’s fair to conclude that market pressure and chatter on this story is building.” 

However, there is a parallel opinion of experts floating in the market that ECB and other central banks heading towards negative interest rates and sub-zero long-term sovereign bond yields are approaching the last extent of stimulus policies.

Germany’s Finance Minister Olaf Scholz showed his readiness towards injecting “many, many billions of euros” in the largest economy in Europe, to save the country resting on the brink of a pit called a recession.

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