German 10-year bund yields fall below zero pct mark for first time in two weeks

The German 10-year bund yields fell below zero percent mark Friday for the first time in last two weeks after the ECB in its new survey of professional forecasters trimmed inflation estimate to 0.2 percent for 2016.

The yield on the benchmark 10-year bond, which moves inversely to its price, hovered around 0 percent mark (currently at -0.003 percent), the yield on long-term 30-year note fell nearly 1 basis point to 0.59 percent and the yield on short-term 2-year bond remained steady at -0.66 percent by 08:40 GMT.

The European Central Bank in its new survey report mentioned that the median forecast for 2016 Eurozone GDP being upgraded to 1.6 percent, from previous estimate of 1.5 percent and kept unchanged at 1.4 percent for 2017. On the other hand, inflation forecast was trimmed to 0.2 percent for 2016, left steady at 1.2 percent for 2017, and cut to 1.4 percent for 2018, from prior 1.5 percent.

This drop in the 2018 inflation forecast to further below the ECB's target will be noted by the ECB, although comfort will be taken from the longer-term forecast remaining in line with the target of just-below-2 percent.

Moreover, the European Central Bank (ECB) in its October monetary policy meeting released yesterday, maintained interest rates at -0.40 percent and the pace of QE at 80 billion Euros per month. ECB President Mario Draghi reconfirmed that QE will run at its current pace until March 2017 or beyond if needed, and until the path of inflation is in line with the target. A moderate, steady pace of growth is expected, though the economy remains subject to downside risks. There is no convincing upward trend in core inflation; but inflation is to pick up in the coming months and should increase further in 2017-18.

Further, Draghi said the ECB did not discuss extending QE at this meeting. He also volunteered that the governing council didn't discuss tapering. Yet Draghi said an abrupt ending to bond purchases is unlikely and the ECB has not discussed if rates can be cut further. He said bond scarcity is not a problem right now, but the issue took much of the discussion.

Meanwhile, the German stock index DAX Index traded flat at 10,703 by 08:50 GMT.