Italy’s securities also rallied, with yields on two-year notes dropping below 1 percent for the first time on record, after the ECB cut its main refinancing rate yesterday and signaled it was open to a negative deposit rate. German bunds declined for the first time in three days before a U.S. report that economists said will show American employers stepped up hiring in April, limiting demand for safer assets.
“The ECB left the door open for further measures to help the economy,” said Christian Reicherter, an analyst at DZ Bank AG in Frankfurt. “The market is hoping the rate cut will help the peripheral economies to gain some momentum. Spread tightening in the periphery is continuing,” he said, referring to the securities of Europe’s high-yield, high-deficit nations.
The Spanish 10-year yield dropped seven basis points, or 0.07 percentage point, to 3.97 percent at 9:30 a.m. London time, after falling to 3.94 percent, the lowest level since May 2010. The 5.4 percent bond maturing in January 2023 rose 0.53, or 5.30 euros per 1,000-euro ($1,311) face amount, to 111.325.
Italian two-year note yields dropped as much as eight basis points to 0.94 percent, the lowest on record. The German 10-year yield climbed two basis points to 1.18 percent after declining to 1.15 percent yesterday, the lowest since July 23.
European Central Bank President Mario Draghi cut the key interest rate by 25 basis points to a record 0.5 percent yesterday and said while there may be “unintended consequences” from taking the deposit rate negative, the ECB is “technically ready” and would “address these consequences if we decide to act.”
ECB Governing Council member Ewald Nowotny said policy makers have no plans at the moment to cut the deposit rate below zero.
Draghi’s comments about a negative deposit rate yesterday were “over-interpreted” by financial markets, Nowotny told reporters in Bratislava, Slovakia, today. “This is one of many options, but it’s not an option that is relevant for the near future.”
U.S. payrolls increased by 140,000 workers following a gain of 88,000 in March, according to the median estimate in a Bloomberg survey of 90 economists. The jobless rate stayed at 7.6 percent, matching the lowest since December 2008, the survey showed.
Spanish government bonds returned 8.9 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds gained 5.2 percent, while German securities earned 1.4 percent, the indexes show.
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