Eurozone bond yields fell on Thursday after the U.S. Federal Reserve struck a more cautious tone than many had expected as the world’s largest economy mulls raising interest rates.
As predicted by many in the market, the Fed altered a pledge to keep rates near zero for a «considerable time» at the end of its two-day meeting on Wednesday.
But using less hawkish language than many had expected, it said it would now take a «patient» approach, which analysts said suggests it will take account of global growth worries and a slide in oil prices, especially after U.S. inflation recorded its biggest drop in six years in November.
“Investors are relieved that there was not more restrictive wording from the Fed. It will definitely stick to its path, but there seems to be more flexibility,» said DZ strategist Daniel Lenz.
German 10-year bond yields — the eurozone benchmark –dipped 2 basis point to 0.57 percent, just above record lows of 0.566 percent hit on Tuesday.
Low-rated debt in the bloc’s southern periphery were among the best performers, as Greece’s failure to elect a president at the first attempt was not seen as damaging the government’s chances of avoiding snap elections.
Wednesday’s parliamentary ballot showed the government needs 20 more votes from independents and small parties in order to achieve a majority by the time of a third ballot due on Dec. 29, when it will require a smaller quorum to elect its candidate.
Many had already written off the chances of the government winning enough votes in Wednesday’s first round, or even during a second round due on Dec. 23.
Italian and Spanish 10-year yields — the bellwethers for the periphery — fell 3 bps to 1.94 and 1.76 percent, respectively.
Greek equivalents fell 10 bps to 8.83 percent, while Portugal’s dropped 3 bps to 2.86 percent.
Expectations of further European Central Bank monetary easing early next year is also supporting demand for euro zone bonds — particularly higher-yielding debt that is seen as offering the most potential to perform.
ECB board member Benoit Coeure said late on Wednesday that policymakers were discussing how best to act to revive the euro zone economy rather than whether to do so, and that sovereign bond purchases were the «baseline option».