Government bonds across the euro area advanced, sending yields to record lows, as investors absorbed details of the European Central Bank’s extended sovereign debt-purchase program, while the euro fell below $1.10 for the first time since 2003.
The rate on securities from Spanish two-year notes to Belgian 30-year bonds dropped to all-time lows after ECB President Mario Draghi said Thursday the euro-area’s national central banks will start buying the bonds of their home markets from March 9. Germany’s two-year debt underperformed its peers after the ECB said it wouldn’t include securities with yields below its minus 0.2 percent deposit rate, Bloomberg reported.
The details “underline our view that there is going to be scarcity value that is bound to rise further in core markets,” said Christoph Rieger, head of fixed-rate strategy at Commerzbank AG. “In turn peripheral markets will outperform.”
Spain’s 10-year yields fell three basis points, or 0.03 percentage point, to 1.25 percent at 9:20 a.m. London time, and touched 1.233 percent, the least since Bloomberg began collecting the data in 1993. The 1.6 percent bond due in April 2025 rose 0.32, or 3.20 euros per 1,000-euro ($1,098) face amount, to 103.34. The rate on the nation’s two-year notes dropped to as low as 0.09 percent.
Portugal’s 10-year yield declined as much as 13 basis points to 1.663 percent, and the rate on Belgian 30-year bonds touched 1.237 percent.
ECB Plan
The ECB’s plan has helped push the yield on about 25 percent of euro-area sovereign securities below zero as of Thursday, according to data compiled by Bloomberg, which means buyers now will get less back when the debt matures than they pay. That includes all German government securities due in six years or less.
Germany’s two-year yield fell one basis point to minus 0.212 percent and the rate on the nation’s 10-year bund, the euro area’s benchmark government securities, was little changed at 0.34 percent. The 30-year yield dropped as much as seven basis points to a record-low 0.874 percent.
Euro-region sovereign bonds returned 3.1 percent this year through Thursday, according to Bloomberg World Bond Indexes, outperforming US Treasuries and UK gilts.
Analysts have suggested the ECB would distort the bond market by buying bonds with negative yields. Draghi said it would only steer clear of bonds yielding less than the ECB's -0.2 percent deposit rate.
Euro Drops
The euro fell on Thursday below $1.10 for the first time since 2003 and the U.S. dollar added to gains against an index of currencies after the European Central Bank said it will next week launch a massive bond-buying program meant to boost economic growth, Reuters reported.
The eurozone common currency, which has lost about 15 percent against the dollar in six months, briefly traded under $1.10 for the first time since September 2003 and hit a session low of $1.0988.
It is also on track for a third consecutive weekly loss against the greenback. The euro is also on track for its ninth consecutive monthly loss against the dollar, which has never happened before. February also marked the eighth loss in a row for the euro. Before then, the longest monthly losing streak for the euro vs the dollar was seven months, according to FactSet.
It was last off near 0.50 percent at $1.10265 in selling that accelerated after a news conference by Draghi.
Draghi spoke after the ECB, in its battle against eurozone economic sluggishness and low inflation, pushed up its 2015 and 2016 growth forecasts and fixed a March 9 start date for bond purchases of 60 billion euros a month.
