By John Geddie
LONDON Oct 13 Europe's benchmark government
bond yield fell back from one-month highs on Thursday after the
latest signals from the world's central banks soothed fears that
monetary stimulus could be petering out.
Talk that the ECB might reduce or 'taper' the scale of its
asset purchases before the scheme finally ends has particularly
unnerved investors in recent days.
But Reuters reported late on Wednesday, quoting sources
familiar with the discussions, that the central bank may discuss
at its meeting next week technical changes that would allow it
to extend the scheme beyond its scheduled end in March.
The report came alongside minutes suggesting the U.S.
Federal Reserve is likely to take a gradual approach to further
rate increases and another Reuters story that the Bank of Japan
will probably cut its inflation forecasts next month.
Data showing the world's second-biggest economy, China, is
faltering further underlined for investors the need for central
banks not to take their foot off the gas.
"It is a combination of a cautious Fed and the ECB
discussing some hands-on ways to address its QE programme,"
Commerzbank strategist Rainer Guntermann said.
"The market clearly got a bit ahead of itself in terms of
German 10-year yields -- the euro zone's benchmark -- fell
3.6 basis points to 0.03 percent, pulling back
from a one-month high hit on Wednesday, according to Tradeweb.
Most other euro zone yields were down 3-4 bps on the day.
Sources told Reuters that the ECB could discuss at its
meeting next Thursday proposals to relax a rule forcing the ECB
to buy debt in proportion to the size of each euro zone economy.
Other proposals may include buying a limited amount of bonds
yielding less than the deposit rate, which the ECB currently
rules out, and buying a bigger share of any individual bond
issue, the sources added.
But any decision could be deferred until December when the
bank will also decide whether to extend the scheme beyond March.
Minutes from the U.S. Federal Reserve's September meeting
suggested a December rate hike is likely but that almost all
policymakers agree that the rate path will be much shallower
than the Fed's last tightening cycle.
The minutes' release late on Wednesday pushed U.S. Treasury
The Bank of Japan is meanwhile likely to cut its inflation
forecasts for the next fiscal year in a quarterly review
concluding on Nov. 1, sources told Reuters. It is not expected
to ease in the near term though, after having revamped its
policy framework only last month.
On the data front, China's September exports fell 10 percent
from a year earlier, far worse than expected, while imports
unexpectedly shrank, suggesting signs of steadying in its
economy may be short-lived.
At auction on Thursday, Ireland sold 1 billion euros of
10-year bonds and Italy raised 8.5 billion euros ($9.5 billion)
over three bonds.
(Editing by Catherine Evans)