Spain’s government bonds rose, pushing 10-year yields down by the most in two weeks, after European Central Bank President Mario Draghi reiterated that euro-area interest rates will stay low for an extended period.
Italian securities also advanced even as ECB policy makers refrained from adding to last month’s stimulus which sparked the biggest rally in euro-region bonds since January. Benchmark German bund yields reached the highest in more than a week as a U.S. government report showed employers added more workers in June than economists projected.
“The euro zone is going to have accommodative policy for a long time,” said Christian Lenk, a fixed-income analyst at DZ Bank AG in Frankfurt. “The payrolls number was also a major market mover. We had a strong dip in bunds after the data.”
Spain’s 10-year yield fell four basis points, or 0.04 percentage point, to 2.69 percent at 4:10 p.m. London time, the biggest drop since June 19. The 3.8 percent bond due in April 2024 rose 0.34, or 3.40 euros per 1,000-euro ($1,361) face amount, to 109.445. The yield spread versus similar-maturity German bunds narrowed four basis points to 1.40 percentage points.
Yields on equivalent Italian debt dropped five basis points to 2.86 percent after sliding to an all-time low of 2.694 percent on June 9.
The central bank’s decision to keep its key interest rates at record lows today was in line with forecasts by analysts in Bloomberg surveys. Rate cuts on June 5 fueled a bond rally from Germany to Greece, with the average yield to maturity on euro-area government debt falling to an all-time low last week. Euro-region bonds earned 1.1 percent last month, the most since gaining 2.2 percent in January.
“The key ECB interest rates will remain at present levels for an extended period of time,” Draghi said at today’s press conference in Frankfurt. Officials are “strongly determined to safeguard the firm inflation expectation over the medium term,” he said. Inflation in the 18-nation bloc held at 0.5 percent in June, which is about a quarter of the ECB’s target.
Last month, the ECB cut its main refinancing rate to a record 0.15 percent and moved the deposit rate to minus 0.1 percent. In that meeting, officials also unveiled a range of measures including long-term loans to banks under the condition they lend the money on to households and companies and preparatory work on purchases of asset-backed debt.
“The fireworks were in June,” Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich, said before the ECB announcement. “The larger picture is still positive for peripheries.”
German 10-year yields were little changed at 1.29 percent after climbing to 1.33 percent, the highest since June 24. Treasury 10-year notes fell for a third day, pushing the yield up by three basis points to 2.66 percent.
U.S. employers added 288,000 jobs last month, following a 224,000 gain in May that was bigger than previously reported, Labor Department figures showed in Washington. The unemployment rate fell to an almost six-year low of 6.1 percent.
Volatility on German bonds was the highest in euro-area markets, followed by those of Finland and Italy, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.
Spain sold 4.5 billion euros of bonds due in 2020 and 2044 today, while France auctioned 8.5 billion euros of debt maturing between 2024 and 2030.
Euro-area securities returned 6.9 percent this year through yesterday, Bloomberg World Bond Indexes show. Greek and Portuguese bonds led, with gains of 30 percent and 15 percent, while German securities gained 4.6 percent, the gauges show.