FT: German bond shortages likely to continue in the face of QE

German bond market shrugs off fears over QE end

Although investors are bracing for the European Central Bank to stop its huge purchases of government bonds at the end of this year, German bond prices are likely to remain close to bulletproof.

It is a sharp contrast to what has unfolded in the US where, as the Federal Reserve has pulled back, bond prices have fallen, upsetting other global markets. But analysts say Europe is different: the Fed’s purchases never exceeded the volume of the net new supply of bonds. ECB purchases have done, particularly in the last two years.

That means few expect yields on the region’s benchmark German Bunds to follow Treasuries in sweeping higher. Indeed, the yield on the 10-year Bund is just about where it started the year, while the spread between German and US yields is at its widest level  for three decades.

“It is a very different backdrop and supply situation for Bunds and other core eurozone markets, compared to the ever-growing Treasury market,” said Martin Hochstein, senior investment strategist at Germany-based fund manager Allianz Global Investors. “The situation in the eurozone is not fully comparable to the US.”

The full article is available at https://www.ft.com/content/62207220-dd05-11e8-9f04-38d397e6661c

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