The European Central Bank may be forced to choose “the nuclear option” of purchasing government bonds as the Greek debt crisis deepens, a decision that would weaken the euro, according to Societe Generale SA.
German government bonds rose with haven assets around the world after U.S. Treasury Secretary Jacob J. Lew said Congress needs to increase the debt ceiling by Oct. 17 or the nation risks defaulting on its payments.
Treasury 10-year yields were within six basis points of a record low before a government report that economists said will show claims for jobless benefits rose last week, underpinning demand for the safest assets.
Spanish and Italian bonds rose on speculation the European Central Bank will augment the firepower of the region’s bailout fund as policy makers step up efforts to contain contagion from the debt crisis.
Stresses in the global financial system have stopped easing as European policy makers signal they’re unlikely to extend a third round of unlimited loans to the region’s banks and as bond yields in Spain and Portugal begin to rise again.