JosephAdinolfi

NEW YORK (MarketWatch) — Investors sold Treasurys and European sovereign debt Wednesday, driving yields higher, on reports that the executive board of the European Central Bank has a plan to purchase €50 billion in eurozone sovereign bonds every month for at least a year.

The reports, from Bloomberg and The Wall Street Journal, said the executive board will present the proposal to the ECB governing council at its meeting Thursday.

Jonathan Rick, interest rate derivatives strategist at Credit Agricole, said the sovereign-debt market had already priced in European quantitative easing before the reports surfaced Wednesday morning.

Now, the market has interpreted the report as a semi-official announcement, and investors are positioning for the post-QE trade, which would be a selloff in sovereign debt as the massive influx of central bank capital into the financial system helps goose inflation.

Higher inflation is bearish for bonds because it eats into investors’ real return.

“If you look at what typically happens with QE, there tends to be a ‘buy the rumor sell the news mentality,’” Rick said.

German bund yields rose for the second-consecutive session. The 10-year bund yield TMBMKDE-10Y, +10.14%  added 7.1 basis points to 0.468%, its highest level in eight days.

The French TMBMKFR-10Y, +1.96%  10-year bond yield was up 4.5 basis points to 0.694%.

Bond yields move inversely to prices, rising as prices fall.

Investors expect ECB President Mario Draghi to begin purchases of eurozone sovereign-debt ranging between €500 billion and €1 trillion at the central bank’s Thursday meeting. Draghi has previously said that the ECB aims to increase its balance sheet by €1 trillion.

The 10-year yield TMUBMUSD10Y, +0.88%  was up 5.1 basis points to close at 1.858%, according to Tradeweb data, while the two-year yield TMUBMUSD02Y, +0.70%  added two basis points to 0.507%.

The 30-year yield TMUBMUSD30Y, +0.73%  added 4.4 basis points to 2.444%, according to Tradeweb.

Here’s what Treasury investors were watching Wednesday:

• Housing starts rose by 4.4% to 1.09 million in December, while the November rate was revised higher to 1.04 million. Analysts said the Treasury market appeared to shrug off the data.
• The U.S. stock market ended Wednesday’s choppy trading day with modest gains, extending its winning streak to three sessions. The S&P 500 SPX, +1.26%   closed 9.58 points, or 0.5%, higher at 2,032.13. The Dow Jones Industrial Average DJIA, +1.47%  added 39.05 points, or 0.2%, to 17,554.
• European stocks closed higher Wednesday, achieving their fifth up day in a row.
• The Bank of Japan opted to maintain its current monetary policy at its meeting Tuesday night, driving the yen higher against the dollar. The yen had weakened against the dollar Tuesday on the expectation that the BOJ could expand its program of asset purchases.
• The ECB will make its widely anticipated policy announcement at 7:45 a.m. Eastern Thursday.