Yields on Eurozone government bonds head south on ECB's QE splurge
Across the Eurozone, yields on government paper touched fresh lows with the exception of Greece, as traders continue to pile into sovereign bonds as the European Central Bank’s (ECB) €60bn per month bond buying programme takes effect.
Given that the ECB intends to buy bonds until September next year, the downward pressure on credit spreads caused by their anticipation is unlikely to be unwound soon, said John Higgins, chief markets economist at Capital Spreads.
“Indeed, the downward pressure might intensify if investors are willing to buy ever more bonds with the primary intention of selling them to the central bank at a higher price,” added Higgins.
Wednesday’s notable move in fixed income markets was that of the yield on Spanish short term debt hitting a new record with the two-year paper falling as low as 0.0077%. In terms of the longer-dated 10-year paper, the yield was 3 basis points at 1.172%.
In the inverse relationship between yields and bonds, the borrowing cost, known as the yield, moves in the opposite direction to its paper, known as the bond.
In Germany, the 10-year yield fell 1.7 basis points to 0.162%, while France’s 10-year yield dropped 2.4 basis points to 0.447%.
In Italy, the 10-year yield moved 3 basis points lower to 1.252% and in Portugal, the corresponding paper was down 1.8 basis points to 1.651%.
By contrast, the yield on Greece's sensitive three-year bonds rose as high as 22.3%. The yield on the 10-year paper rose 2.5 basis points to 11.336% as the country is on the brink of a credit crisis that could lead to its exit from the Eurozone, unless of course, its creditors approve of urgent funding.
Greek Prime Minister Alexi Tsipras has so far failed to agree a new rescue package with Brussels that would unlock €7.2bn in frozen funds. Another tussle is currently taking place in Brussels with European equity markets spending the day in high hopes for a deal with the German DAX up 0.3% and the French CAC-40 up by 0.7%.
ECB head honcho Mario Draghi has previously said that the central bank are currently not buying Greek bonds though they do qualify for purchase under the bond-buying programme, but eligible countries have to stick to the terms of their rescue programmes.