(Bloomberg) -- German bonds reversed sharp gains as money markets no longer expect the European Central Bank to cut interest rates again this year.
Sovereign debt across the euro area also pulled back from a rally sparked by a rate cut and open-ended bond-buying plans. The turnaround came as ECB President Mario Draghi said lifting a cap on purchases hadn’t been discussed, potentially limiting how long they can last, and called on governments to instead use fiscal policy as the main tool to revive growth and inflation.
Draghi also said the risk of a recession was low, calming expectations for further stimulus that drove bond yields deeper into negative territory across the continent earlier in the day. Money markets pushed back pricing for the next 10-basis-point rate move in April 2020, compared to December this year before the policy meeting.
German 10-year yields moved four basis points higher at minus 0.52%, after falling as much as eight basis points. Inflation swap forwards, a gauge of price expectations over the next five years, jumped by as much as 12 basis points to 1.35%, the highest since July.