Mon Oct 6, 2014 6:48am EDT
* German factory orders post biggest drop since 2009 in August
* More QE speculation days after ECB meeting disappoints
* French budget discussions are sign of discord at EU level-trader (Updates prices, adds fresh quote)
By Marius Zaharia
LONDON, Oct 6 (Reuters) - Euro zone bond yields fell on Monday after data showing German industrial orders dropped at their fastest rate since 2009 in August revived expectations of further monetary easing.
The European Central Bank gave no hints last week that it was in any hurry to take more easing measures, instead giving extra details about plans it announced in September to buy asset backed securities and covered bonds.
But a worsening economic outlook for the euro zone means parts of the market think it is only a matter of time before the ECB starts buying government bonds to pump money into the economy, a measure known as quantitative easing (QE).
German orders fell 5.7 percent on the month, undershooting expectations of a 2.5 percent drop in a Reuters poll.
"The economy is not running at full speed, price pressures will remain very, very low in this environment and this is sparking some QE speculation among some investors," said Christian Lenk, rate strategist at DZ Bank.
"That's overriding the fact that Draghi did not explicitly announce more details on possible QE last Thursday."
German 10-year Bund yields, the benchmark for euro zone borrowing costs, fell 2 basis points to 0.91 percent - just 4 bps away from their record lows. They had touched 0.95 percent after the ECB meeting.
Other euro zone bond yields fell 1-5 basis points, with Spanish 10-year yields at 2.11 percent and their Italian equivalent at 2.31 percent.
"I've always been quite sceptical about QE," said Elwin de Groot, senior market economist at Rabobank.
"But looking at these data now and the dynamics that we've seen over the past couple of months, they are pointing to a scenario where QE will be invoked at some point."
For other market participants QE remains a more distant prospect. They note the measure is opposed by Germany and say it will take a serious deflation scare to get everybody on board.
One trader pointed to reports saying the European Commission is likely to reject France's push for a higher budget deficit in 2015 as a sign of big differences between policymakers.
"There's a lot of conflict underneath the surface and it make you think that QE is questionable," the trader said.
A French presidential official said Paris does not expect its 2015 budget bill to be rejected at European Union level.
In money markets, the overnight bank-to-bank Eonia lending rate settled at a new record low of minus 0.045 percent. (Reporting by Marius Zaharia, editing by John Stonestreet)
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