Welcome or not, ECB buying crushes German two-year bond yields

LONDON: Germany’s record low short-term borrowing costs have further to fall as the ECB, faced with a scarcity of eligible bonds for its monetary stimulus program, takes advantage of recent rule tweaks to buy more shorter-dated paper.

Traders say the German Bundesbank, acting on behalf of the European Central Bank, has been buying bonds below the minus 0.40 percent deposit rate in the past two weeks.

Speculation about further buying in this area is exacerbating demand for top-rated German debt and prolonging a move that is out of kilter with a pick-up in economic growth and inflation in the euro zone’s biggest economy.

“What has changed since December is that the scarcity constraints, even if faced later in the year, are having an impact on policy today,” said Frederik Ducrozet, a senior economist at Pictet. “That is the most important development and holds the most risks to…

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