Global Bond Markets Gyrate as Investors Decipher ECB's Next Move -- 2nd Update

By Christopher Whittall Features Dow Jones Newswires

Global government bonds and the euro whipsawed on Wednesday as investors tried to parse signals from the European Central Bank on when it will begin winding down its EUR2.3 trillion ($2.6 trillion) bond-buying program.

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The day's gyrations show how focused investors have become on when central banks will withdraw the stimulus that has shaped markets for so many years.

Investors had been selling government bonds and buying the euro following comments from ECB President Mario Draghi on Tuesday that highlighted a "strengthening and broadening" eurozone economic recovery that many took that as a sign that the central bank was preparing to trim its EUR60 billion of monthly bond purchases.

But media reports on Wednesday suggesting investors had misinterpreted Mr. Draghi's comments brought that selloff to an abrupt halt shortly before U.S. markets opened. The euro dipped briefly below $1.13 against the dollar, having traded as high as $1.1389. It was at $1.1324 recently, down 0.1% on the day.

The yield on the 10-year Treasury note pared earlier gains to trade at 2.223% recently, according to Tradeweb, having traded above 2.25% earlier in the day. That is still up from a 2017 low of 2.135% at Monday's close. Eurozone government and corporate bonds also pared losses.

An ECB spokesman declined to comment.

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In an interview on CNBC earlier on Wednesday, Vítor Constâncio, the ECB's vice president, suggested investors might have overreacted to Mr. Draghi's earlier speech.

"Personally, I don't see anything in the speech that would be different from, say, the previous two main [speeches] about monetary policy done by the president," Mr. Constâncio said, according to a text of the interview published on the ECB's website.

But recent trade shows how investors are unsure how to interpret Mr. Draghi and the ECB.

Earlier Wednesday, investors had been questioning whether moves in bond markets could turn into a full-scale "taper tantrum."

Others had cast doubt on how far bond yields could rise. Olivier de Larouzière, head of interest rates at Natixis Asset Management, said yield-hungry institutional investors had seen the selloff as a buying opportunity. He said his trading desk had seen flows from Japanese and French insurance companies scooping up long-dated French government bonds on Wednesday.

"As soon as you get a yield pickup, you get buyers, because investors are desperate for yield," said Mr. de Larouzière.

Tom Fairless in Frankfurt contributed to this article.

Write to Christopher Whittall at christopher.whittall@wsj.com

(END) Dow Jones Newswires

June 28, 2017 09:28 ET (13:28 GMT)