Ahead of the European Central Bank announcement on Thursday, German bond exchange traded notes are strengthening on speculation of additional quantitative easing to combat a persistently weak Eurozone economy.
On Wednesday, the PowerShares DB German Bond Futures ETN (NYSE Arca: BUNL) was up 0.11% and the leveraged PowerShares DB 3x German Bond Futures ETN (NYSE Arca: BUNT) was 1.6% higher. Year-to-date, BUNL has gained 11.0% while BUNT increased 35.5%.
Both ETNs are relatively small – BUNL has $9.2 million in assets and BUNT has $15.3 million in assets. Consequently, potential investors should utilize limit-orders to better execute trades. [A German Bond ETN Rally]
The ETNs track long positions in Euro-Bund futures with remaining term to maturity of no less than 8 years and 6 months and no more than 10 years and 6 months.
In response to the loose monetary bets, Germany auctioned 10-year bonds with a yield less than 1% for the first time, Bloomberg reports.
In the secondary market, benchmark 10-year German bund yields were at 0.9% Wednesday. The rate touched a record-low of 0.866% on August 28.
“Yields are expected to stay low in Germany for a very long time,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “You have the ECB easing and pretty low growth. Yield levels are low but that’s what you have to buy.”
Even with yields below 1%, the income generated from German bunds is a fare more attractive alternative to the negative rates for parking money with the ECB. Anticipating further ECB easing, traders dived into European fixed-income assets this year, pushing German bund prices highers and yields lower.
“The renewed low 10-year Bund yield is no surprise, given low growth and inflation expectations,” Ruediger Kerth, portfolio manager for European government bonds at Union Investment, said in a Wall Street Journal article. “The ECB is likely to continue its accommodative monetary policy and accompanying measures to spur growth.”
According to Eurozone data, inflation declined to an annual rate of 0.3% in September, a five-year low and below the ECB’s target of just under 2%.
PowerShares DB German Bond Futures ETN
