Article Highlights

  • Euro zone bond yields down 1-5 bps
  • German 10-year bond yield drops to a week-low
  • Greece bond yields drop to 2-1/2 month low
  • U.S yields fall after week of sell-off
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Euro zone bonds yields fell on Friday as a cautious European Central Bank helped markets regain their footing after a U.S.-led sell off earlier in the week.

ECB chief Mario Draghi played down concerns over softness in the euro zone economy on Thursday as the ECB sought to bolster expectations for a gradual withdrawal of the ECB’s monetary stimulus.

Analysts said that investors who had been reluctant to buy European government debt because of the ECB’s event risk were now snapping up debt. “The ECB meeting was taken on the dovish side, because there was no mention of monetary policy and they seemed to be wavering as to whether to announce what to do (on quantitative easing) at the June or the July meeting ” said Rabobank rates strategist Lyn Graham-Taylor.

U.S. 10-year Treasury yields are back below the three percent level after sharp rises earlier this week on concerns about rising inflation and growing borrowing by the U.S. government. That recovery has also supported euro zone debt markets.

“There’s relief for euro zone bonds markets from the sharp U.S-led selloff we’ve seen over the last seven days,” said Commerzbank rates analyst Rainer Guntermann.

“There’s underlying support from here on for Europe markets that has to do with the pent-up re-investments from the ECB portfolios, with high pay backs last week, and which still need to be re-invested by the national central banks.”

Germany’s 10-year Bund yield hit a one-week low of 0.564 percent, below six-week highs hit earlier this week at 0.655 percent .

Bund yields extended their drop slightly after U.K data showed Britain’s economy slowed much more sharply than expected in the first three months of 2018, raising questions over whether the Bank of England will raise rates next month.

German Bund yields are set for this biggest weekly fall in four weeks, according to Reuters data.

Euro zone borrowing costs were down 1-5 basis points across the board.

ECB board member Yves Mersch said on Friday that euro zone inflation would continue to rise but only slowly, largely repeating the bank’s policy message from its rate meeting on Thursday.

The ECB’s Survey of Professional Forecasters said on Friday that euro zone inflation could rise slower than earlier thought but growth may stay resilient to the recent slowdown.

Fellow ECB board member Benoit Coeure urged Greece on Friday to conclude reforms agreed with its euro zone creditors in time to successfully exit its bailout program in August.

Greece’s government bond yields meanwhile hit a 2-1/2 month low as euro zone finance ministers said they are set to decide in June on the future steps to help Greece successfully end its current bailout program.

Later on Friday, the U.S. government will offer its initial snapshot of first quarter U.S. gross domestic product.