Eurozone bond yields hold at new lows on ECB easing prospects
Eurozone bond yields held at record lows on Tuesday with financial markets lulled by European Central Bank President Mario Draghi’s vow to lift inflation from near-zero level by whatever means necessary.
Spanish 10-year yields were below 2 percent, Irish yields below 1.5 percent and Portuguese yields under 3 percent. Most eurozone yields were at or near all-time lows as investors bet the ECB would expand its asset buying to include sovereign debt.
The central bank has started to buy asset-backed securities and covered bonds and is due to offer a new round of long-term loans to banks next month as it tries to encourage lending to businesses and consumers.
The ECB is hoping to pump an additional trillion euros into the economy but many analysts say its current measures are unlikely to achieve that goal.
The ECB meets next week for the last time this year.
“The strong performance of peripheral bonds does feel like a market increasingly speculating substantial monetary loosening by the ECB as soon as next week,” said Orlando Green, fixed income strategist at Credit Agricole.
“We expect this theme to persist in the near-term.”
German 10-year Bund yields, which set the standard for eurozone borrowing costs, fell 1 basis point to 0.77 percent.
Investors see sovereign debt as the most liquid asset the ECB could buy to expand its balance sheet. But German opposition to financing governments and potential legal difficulties are still fuelling some doubt.
Bundesbank President Jens Weidmann reiterated on Monday his opposition to the ECB buying government bonds.
Greek 10-year yields were 5 bps lower on the day but remained very high at almost 8 percent. Representatives from Greece, which defaulted in 2012, are holding talks in Paris with their international creditors on the bailout deal.
Athens had set a Dec. 8 deadline to complete the review of the aid programme, which it plans to quit by the end of the year and potentially open a precautionary credit line instead.
Prime Minister Antonis Samaras is banking on that move to win him enough support to push through his candidate in presidential elections next year. Failure to do so will lead to early polls, which the radical leftist Syriza party might win.
“We only expect a last-minute agreement in early December,” Commerzbank strategists said in a note.
