(Bloomberg) -- Europe's bonds looked set for gains after the European Central Bank came to the rescue of debt markets for a second time this month with a 750 billion euro ($820 billion) quantitative easing package.
German bund futures rose as much as 122 ticks in Asia trading before gains pared. Traders suggested the lack of ability to take risk was the impediment to larger moves, though they expected further gains as cash trading gets underway in Europe.
Weeks of stress in the European bond market has resulted in large moves in poor liquidity, as investors dialed up the expected economic fallout from the coronavirus outbreak. Italian bonds, popular as a macro hedge, have suffered, with their yield spread over bunds widening over 130 basis points in the last month. This may be set to change.
“Given the sheer scale of the programme, coupled with reduced liquidity in the market at present, this should have a substantial impact in the market over the coming weeks,” wrote Peter Schaffrik global macro strategist at RBC Europe Ltd. in a client note.
Expect to see German and French bond yields fall again, yield curves to flatten, and “the main beneficiaries should be Italy and Greece, with the latter being eligible for ECB purchases for the first time since the Securities Markets Program.”
The central bank had already perked up asset buying plans this month. At its March 12 meeting, it increased the existing 20 billion euro per month asset purchase facility by pledging another 120 billion euro to be added until the end of the year.
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