German bunds slump as ECB keeps policy rate unchanged and refrains extension of QE

The German bunds slumped Friday after the European Central Bank in its monetary policy decision left interest rates and the pace of asset purchases unchanged, as expected, but reaffirms that quantitative easing will run until at least March 2017.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose more than 2 basis points to -0.038 percent, the yield on long-term 30-year note jumped 6-1/2 basis points to 0.565 percent and the yield on short-term 2-year bond climbed ½ basis point to -0.642 percent by 08:40 GMT.

Thursday's ECB meeting passed without any policy changes or signals, defying expectations of an extension of QE. We now expect that to be announced in December. The ECB made few changes to its economic forecasts, leaving its key 2018 CPI forecast at 1.6 percent.

While President Draghi maintained that economic risks remain to the downside, he said growth was steady and the data show 'resilience' (presumably to Brexit). The central bank presumably felt little pressure to act, especially with current inflation running in positive territory. Nevertheless, with even core inflation running at less than half the ECB's target of slightly-below-2 percent its easing bias will remain for some time.

Meanwhile, the German stock index DAX Index traded 0.17 percent lower at 10,657.90 by 08:40 GMT.