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UPDATE 2-Buying bias? Investors grab German bonds as ECB reveals redemptions
November 6, 2017 / 12:20 PM / 12 days ago

UPDATE 2-Buying bias? Investors grab German bonds as ECB reveals redemptions

* ECB to reinvest 129.8bn euros over next 12 months

* Investors looking for clues on future purchases

* Data may confirm bias towards German bonds, say analysts

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Adds ECB reinvestment projections, updates prices)

By John Geddie

LONDON, Nov 6 (Reuters) - German government borrowing costs held near a two-month low on Monday after data showed the European Central Bank will reinvest nearly 130 billion euros into the bond market in the coming year, underpinning euro zone debt yields.

The ECB last month announced an extension to its quantitative easing scheme until at least September, and while it plans to lower the rate of new purchases it has also said it will reinvest proceeds from bonds it has previously bought.

To allow investors to gauge those reinvestment needs over the next 12 months, the ECB for the first time on Monday published the expected monthly redemption amounts alongside its usual monthly purchase data.

Bond redemptions in the ECB’s asset purchase programme will total 129.8 billion euros over the next 12 months, with 101.5 billion euros in the bank’s public sector purchase programme, the data showed.

Germany is expected to receive the largest reinvestment flows because the ECB buys bonds in line with the size of a country’s economy in what is known as the capital key.

“More than the absolute amounts, the split by countries will be quite important,” RBC’s global macro strategist Peter Schaffrik said.

“We suspect that the ‘Germany’ redemptions will be substantially higher than any other bracket – and also be higher than the capital key suggests.”

Schaffrik added that data shows the ECB has bought German bonds of a shorter maturity on average than those in peripheral countries. Therefore, those bonds will be first to mature.

German 10-year bond yields - which move inversely to price - fell further than their euro zone peers on Monday, down 3 basis points at their lowest in around two months of 0.33 percent, before settling at 0.34 percent.

Yields on lower-rated Spanish and Italian bonds slipped, but by less than a basis point in either case.

Bond markets were broadly supported by a sense that the ECB is in no rush to exit its ultra-easy stance.

The Bank’s chief economist Peter Praet on Monday said the decision to extend asset purchases was warranted by weak inflation and reinforced its guidance to keep rates at their current level for an extended period.

Late on Friday, Benoit Coeure, who is the ECB’s director in charge of the asset purchases, said the decision to extend purchases might result in a stronger euro but that the exchange rate was not a policy target for the ECB.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Additional reporting by Abhinav Ramnarayan; Editing by Andrew Heavens and Emelia Sithole-Matarise

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