Italian bond yields lowest in over three months

LONDON: Italian borrowing costs sank to their lowest in over three months on Thursday ahead of a European Central Bank press conference where its chief Christine Lagarde is expected to elaborate on a new target widely perceived as having dovish implications.

The ECB, in its first official policy statement since it tweaked its inflation target, pledged to keep interest rates at record lows for even longer to help sluggish inflation in the eurozone rise back to its elusive 2 per cent target.

German bond yields edged a basis point higher on the statement and eurozone banks ticked higher, but lower-rated eurozone bond yields remained broadly lower ahead of Lagarde’s press conference slated to begin at 1230 GMT.

“The forward guidance is a bit more dovish and allows for more easy policy. The recalibration is about the duration of support rather than the size of the support,” said Piet Haines Christiansen, chief strategist at Danske Bank.

“This is more aligned to the new strategy outcome rather than a new policy signal,” he said, adding that the wording on bond buying is unchanged.

Italy’s 10-year bond yield dropped two basis points to 0.6708 per cent, the lowest since early April, and other southern European benchmark bond yields were also down 1-3 basis points on the day. The ECB’S recent statement that it believes any further cut in interest rates would not be beneficial given their already low levels has led investors to conclude that the focus will shit even further to bond purchases.