Falling inflation expectations keep euro zone yields near multi-month lows

strategist Martin van Vliet.

“If inflation is not reviving, the ECB needs to keep a loose policy stance, which helps the periphery in particular.”

Lower-rated southern European government bonds are seen as the biggest beneficiaries of the ECB’s bond buying scheme.

Italian debt outperformed the rest of the market, its 10-year debt dropping as much as 5 basis points to a fresh five-month low of 1.86 percent. As European trading came to a close, it was at 1.89 percent.

The country’s 30-year borrowing costs dropped below 3 percent for the first time since early January.

The yield on Spain’s 10-year government bonds fell as much as 4 bps to a five-month low at 1.33 percent, before edging back up to 1.36 percent.

Italian government bonds have benefited after the possibility of a snap election faded and antiestablishment party 5-Star Movement, while riding high in national opinion polls, suffered a beating in local votes.

In addition, 5-Star Movement has also relegated its pledge to hold a referendum on the euro — a key concern for the market — to “plan B”.

But many higher-rated euro zone government bond yields are not far off recent lows either. Germany’s 10-year yield , the benchmark for the region, shed a couple of basis points on Thursday to trade at 0.24 percent, not far from a one-month low of 0.225 percent hit last week. (RTRS)