Languishing Inflation
Inflation in Europe is already languishing below the ECB’s goal of just under 2 percent, and the central bank has already started purchases of covered bonds and asset-backed securities, and introduced a negative deposit rate. A report today from Spain’s statistics agency in Madrid showed that annual prices in Spain, calculated using an European Union-harmonized method, fell 0.5 percent in November in a fifth month of declines.
That’s adding to pressure on ECB President Mario Draghi. The five-year, five-year forward inflation swap rate, highlighted by Draghi in August at a symposium for central bankers, was at 1.73 percent today, compared with the record-low 1.7225 percent set on Oct. 15. The annualized euro-area inflation rate was at 0.3 percent last month, matching the lowest since October 2009.
The rate on Spanish 10-year bonds was little changed at 1.87 percent, while the equivalent Greek yield increased nine basis points to 9.17 percent.
German government securities returned 9.4 percent this year through yesterday, Bloomberg World Bond Indexes show. The average yield on the securities is at a record-low 0.42 percent.
Spanish bonds earned 15 percent and Italy’s 14 percent, the indexes show.