Eurozone bond yields fall on ECB’S new strategy

LONDON: Eurozone bond yields fell and Italian yields briefly touched their lowest in over three months on Thursday, ater ECB President Christine Lagarde elaborated on a new target that will keep rates at record lows for longer.

The European Central Bank (ECB), in its first official policy statement since it tweaked its inflation target, pledged not to hike borrowing costs until it sees inflation reach its 2 per cent target “well ahead of the end of its projection horizon and durably”.

The decision was the first since the ECB adopted a symmetrical inflation target earlier in July, implying that it may tolerate inflation moderately above target for a transitory period.

German 10-year bond yields, the benchmark for the bloc, fell nearly 3 basis points to -0.423 per cent at the start of ECB chief Lagarde’s press conference, nearing their lowest since February. They later gave up much of that fall and the yield was down 1 basis point at -0.405 per cent by 1408 GMT.

Italy’s 10-year bond yield fell as much as 5 bps to 0.638 per cent, its the lowest since early April, before giving up some of the drop to last trade at around 0.67 per cent. Its five-year yield meanwhile briefly turned negative for the first time since April..

“There was some disappointment that there wasn’t more detail about the ( Pandemic Emergency Purchase Programme), but the general perception is that the forward guidance was on the dovish side, which is why we see the market react this way,” said Daniel Lenz, rates strategist at DZ Bank.