Bond Markets Tilt Toward Frankfurt

Stalling of Eurozone economies and ECB consideration of quantitative easing program are increasing leverage European markets have over bond investors.

The world’s most-influential bond market might just be in Frankfurt.

As speculation deepens that the European Central Bank (ECB) will start quantitative easing just as the Federal Reserve ends its own bond buying, Europe is gaining more leverage over investors globally as the specter of deflation in the region unleashes greater demand for fixed income. The gravitational pull exerted by German bunds may blunt any jump in yields as the Fed moves to raise U.S. interest rates for the first time since 2006.

With yields already so low in Europe, speculation that the ECB will finally embrace a form of monetary stimulus it has long avoided has also been a boon for bonds outside the region.

Debt securities of all types worldwide returned 1.3 percent in August, the most since January, according to index data compiled by Bank of America Merrill Lynch.

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