By Joseph Adinolfi, MarketWatch

Investors expect ECB to extend its EUR80 billion monthly bond-buying program

Yields on European and U.S. government bonds edged lower on Wednesday ahead of a long-anticipated announcement about the future of the European Central Bank's EUR80 billion ($85 billion) a month bond-buying program.

ECB President Mario Draghi promised that the central bank would reveal its plans for the program, which is set to expire in March, at the central bank's December policy meeting Thursday.

The dominant belief among market strategists is that the central bank will extend the asset purchases through the end of 2017. However, some fear that the central bank could announce a timetable for tapering the program, which could push European interest rates higher, said Raman Srivastava, deputy chief investment officer at Standish Mellon.

"The big question around the ECB tomorrow is tapering. We don't expect them to announce tapering tomorrow, they're going to have to next year at some point," Srivastava said.

"Any hints about the timing of tapering could have ramifications for higher rates in Europe," Srivastava said.

The ECB's program, which encompasses purchases of public and private debt, was first announced in January 2015, with buying beginning in March. The program is credited with sending European bond yields to historic lows, as the central bank absorbed much of the stock of newly issued bonds.

The yield on the 10-year Treasury note shed 2.6 basis points to 2.365%, while the yield on the 10-year German bund, considered the European benchmark, slipped 2.8 basis points to 0.346%. Bond yields fall as prices rise. The two-year yield fell 0.9 basis point to 1.1201%. The 30-year yield shed 1.7 basis point to 3.067%.

The postelection selloff in global bond markets is showing signs of slowing, as Treasury yields are trading flat on the week. Investors expect that President-elect Donald Trump's proposed fiscal policies would drive up wages and inflation, which in turn would push yields higher.

In addition, Trump's fiscal-stimulus plans would help alleviate some of the pressure on the Federal Reserve, which has been trying to stimulate economic growth through loose monetary policies since the great financial crisis. This might force the central bank to raise interest rates more quickly, which would add to pressures on short-term U.S. debt.

Market-based indicators show that investors view a rate hike at the Fed's upcoming meeting as a virtual certainty. They then see the central bank hiking rates twice in 2017, which is in line with the Fed's median forecast from its latest set of economic projections, released at its September meeting. The Fed is slated to hold its policy-setting meeting Dec. 13-14.

(END) Dow Jones Newswires

December 07, 2016 09:06 ET (14:06 GMT)