ECONOMY

Dutch bonds drop with Germany’s as Draghi damps stimulus bets

Dutch government bonds dropped for a fifth day after European Central Bank President Mario Draghi emphasized the need for structural change in the euro area, damping bets on sovereign-debt purchases.

German, Austrian and Belgian securities also fell amid speculation improving US economic data will prompt the Federal Reserve’s Open Market Committee to signal a move toward raising interest rates at its meeting next week. Draghi’s comments in Milan on Thursday

came after ECB Vice President Vitor Constancio said in an interview with Boersen-Zeitung that there was no proposal for doing quantitative easing at the central bank’s August meeting.

“This is the message Draghi also made very clear at the last meeting,” said Michael Leister, a senior fixed-income strategist at Commerzbank AG in Frankfurt. “The FOMC is really moving into focus. Some concern that the Fed will surprise on the hawkish side next week is really the driver for this ongoing correction higher in core yields.”

Dutch 10-year yields rose two basis points, or 0.02 percentage point, to 1.22 percent at 10:13 a.m. London time. The 2 percent bond due in July 2024 fell 0.205, or 2.05 euros per 1,000-euro ($1,292) face amount, to 107.175. The rate has climbed 15 basis points this week, the most since the period ended Aug. 16, 2013.

Benchmark German 10-year yields added three basis points to 1.07 percent. The equivalent Austrian rate increased two basis points to 1.27 percent and Belgium’s rose two basis points to 1.37 percent.

ECB Policy

Investment in the euro area’s economy will only return to pre-crisis levels if governments work with the central bank to achieve reforms and stimulate growth, Draghi said yesterday. The ECB last week cut interest rates and announced it will buy asset-backed securities.

“There was no proposal for doing QE at this meeting,” Constancio said, according to the Boersen-Zeitung interview. “QE was discussed, but it was not on the table for a decision.”

Volatility on Finnish bonds was the highest in the euro area today, followed by those of Germany and Ireland, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.

Finland’s 10-year yield increased two basis points to 1.19 percent.

Euro-area government securities returned 9.5 percent this year through yesterday, Bloomberg World Bond Indexes show. Germany’s earned 6.7 percent, the Netherlands’ 7.6 percent, while Italy’s and Spain’s gained 12 percent.

[Bloomberg]