German government borrowing costs hit a two-month low yesterday as investors bought the country's bonds in anticipation of new European Central Bank data that could give clues to where it will focus future asset purchases.
The ECB last month announced an extension to its quantitative easing scheme until at least September, and while it plans to lower the rate of new purchases it has also said it will reinvest proceeds from bonds it has previously bought.
To allow investors to gauge those reinvestment needs over the next twelve months, the ECB will for the first time publish the expected monthly redemption amounts alongside its usual monthly purchase data. While this is not expected to include a breakdown of redemptions by country, investors will be trying to work that out from historical redemption data the ECB will also publish.
Germany is expected to receive the largest reinvestment flows because the ECB buys bonds in line with the size of a country's economy in what is known as the capital key.
"More than the absolute amounts, the split by countries will be quite important," RBC's global macro strategist Peter Schaffrik said. "We suspect that the ‘Germany' redemptions will be substantially higher than any other bracket - and also be higher than the capital key suggests."
Schaffrik added that data shows the ECB has bought German bonds of a shorter maturity on average than those in peripheral countries. Therefore, those bonds will be first to mature.
German 10-year bond yields - which move inversely to price - fell further than their euro zone peers yesterday, down 3 basis points at their lowest in around two months of 0.33 percent . Yields on lower-rated Spanish bonds were flat on the day and Italy's were 1 bps lower.
Bond markets were broadly supported by a sense that the ECB is in no rush to exit its ultra-easy stance.
The Bank's chief economist Peter Praet said the decision to extend asset purchases was warranted by weak inflation and reinforced its guidance to keep rates at their current level for an extended period.
Late on Friday, Benoit Coeure, who is the ECB's director in charge of the asset purchases, said the decision to extend purchases might result in a stronger euro but that the exchange rate was not a policy target for the ECB.
