German government bonds rose, pushing 10-year yields to the lowest since August, after European Central Bank President Mario Draghi signaled further stimulus is possible should economic conditions deteriorate.
French and Austrian 10-year yields fell to records as Draghi said monetary policy will “remain accommodative for as long as needed” to boost growth. Spanish and Italian bonds pared gains as the ECB president said the central bank won’t immediately implement measures to ease funding strains for smaller companies. Draghi spoke in Frankfurt after the ECB left its key refinancing rate at an all-time low 0.75 percent.
“Low growth is very favorable for core bonds,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale in Paris. “Draghi kept open the prospect of a rate cut and non standard measures.”
The German 10-year yields fell four basis points, or 0.04 percentage point, to 1.25 percent at 4:30 p.m. in London after dropping to 1.24 percent, the lowest since Aug. 2. The 1.5 percent bund due in February 2023 rose 0.375, or 3.75 euros per 1,000-euro ($1,285) face amount, to 102.325.
Euro-denominated sovereigns also rallied amid speculation Japanese money managers will buy them after the Bank of Japan said today that it will purchase more local bonds.
The BOJ plans to buy about 7.5 trillion yen ($78.4 billion) of bonds a month and double the monetary base, which includes cash in circulation, in two years. That exceeded economists’ median estimate of 5.2 trillion yen a month and is the biggest move since quantitative easing began in 2001.
“What the Bank of Japan did today has a significant global ramification,” said Soeren Moerch, head of government-bond trading at Danske Bank A/S in Copenhagen. “There will be more cheap money and that will benefit risk assets, including bonds in Europe.”
Draghi said risks to the euro area’s economic outlook remained on the downside and inflation was “edging down well below” the ECB’s 2 percent target.
“We will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability,” he said after the meeting. The ECB is “ready to act,” he said.
France’s 10-year yield dropped as much as 10 basis points to 1.893 percent, the lowest since Bloomberg began compiling data on the securities in 1990. Similar-maturity Austrian yields slipped as much as seven basis points to 1.597 percent.
An index of euro-region services activity based on a survey of purchasing managers declined to 46.4 last month from 47.9 in February, London-based Markit Economics said. That’s below an initial estimate of 46.5 published on March 21. A reading below 50 indicates contraction.
The Spanish 10-year bond yield was little changed at 4.91 percent after falling as much as nine basis points. The yield on similar-maturity Italian debt fell three basis points to 4.54 percent after also declining as much as nine basis points.
Spanish two-year yields dropped to the lowest level in 2 1/2 years. The rate fell five basis points to 2.16 percent after slipping to 2.07 percent, the least since October 2010.
Spain sold 4.3 billion euros of bonds due between 2016 and 2021, compared with the maximum target of 4 billion euros. The nation allotted 3.06 billion euros of notes maturing in July 2016 at an average yield of 3.019 percent, up from 2.632 percent at the previous auction on March 7.
France sold 6.97 billion euros of debt, including 2 billion euros of bonds due in 2022 at an average yield of 1.94 percent, the lowest on record.
German debt returned 0.4 percent this year through yesterday according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds returned 3.8 percent and Italy’s gained 0.8 percent.